UK Financial Regulator May Ban Crypto Derivative Trading For Consumers


The Financial Conduct Authority (FCA), U.K’s financial regulatory watchdog, is reportedly considering imposing a ban on the sale of crypto-based derivatives.

UK Financial Regulator May Ban Crypto Derivative Trading For Consumers
Source: Cryptoassets Taskforce: final report mandated by HM Treasury, the Financial Conduct Authority and the Bank of England

In a statement published at the end of October this year, and quoted in the Financial Times (FT), the FCA will constitute a consultative forum in early 2019 to deliberate on whether or not it should prohibit these asset-based derivatives.

The potential ban emanates from the fact that the body has sole authority over the crypto derivative markets, including any activities therein related to trading, transacting and advising.

Therefore, all products relating to contracts for difference (CFDs), options, and futures fall under the FCA’s regulatory mandate, which means any market provider needs to have official approval before offering them.

Report says derivatives higher risk than spot market

The FCA’s considerations appeared at the same time as a task force formed to look into the crypto market released their report.

The Cryptoassets Taskforce, which has representatives drawn from the U.K. Treasury, the FCA, and the Bank of England published its report on Monday, October 29, 2018.

In the report, the Taskforce argues that leveraged digital asset-based derivatives posed even higher risks compared to the crypto spot market.

The view is that the latter holds the risk of magnifying potential losses, which could “go beyond the initial investment.” It also warned against the additional fees that trading in such markets imposes on consumers.

Even as these statements come out, reports indicate firms that sale crypto derivatives are becoming increasingly profitable. The Financial Times identifies two online trading platforms that are publicly listed on the London exchange as doing very well in this market.

The two are IG Group, one of the biggest providers of CFDs in the U.K; and Plus500, EU’s leading provider of trading markets in Forex, cryptocurrencies, equities, and commodities, with contracts for differences spread across over 2,000 securities assets.

FCA’s take on crypto assets and exchanges

It is reported that the FCA could consider expanding its plans and execute a parallel discussion on whether to broaden its regulatory control to crypto assets.

Also in the mix could be the crypto-related infrastructure, meaning the watchdog could also look at exchange platforms and wallet providers.

The FCA statement allegedly “made [it] clear that in its view, crypto assets have no intrinsic value,” warning investors that they should be ‘prepared’ to lose all their money. It also noted that the cryptocurrency asset class could potentially be a threat to the future stability of the market.

While the FCA in its capacity holds a dim view of the crypto asset class, the government Taskforce appears to be open-minded.

The task force proposed that the cryptocurrency be subject to a three-fold framework, that looks at the digital asset as a medium of exchange, an investment vehicle, or a tool that supports funding via Initial Coin Offerings (ICOs).

Much about this will become more evident in the first quarter of 2019; though it will likely take a bit more time to have a transparent regulatory environment.

The legal director at Reynolds Porter Chamberlain (RPC) earlier this month predicted that it could take two years to develop a robust crypto regulations framework in the U.K.

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