The FCA is proposing rules to address harm to retail consumers from the sale of derivatives and exchange traded notes (“ETNs”) referencing certain types of cryptoassets.
The FCA considers these products ill-suited to retail consumers who cannot reliably assess the value and risks of derivatives or ETNs that reference certain cryptoassets (crypto derivatives). This is due to:
- The inherent nature of the underlying assets, which have no reliable basis for valuation;
- The prevalence of market abuse and financial crime in the secondary market for cryptoassets (e.g. cyber theft);
- The extreme volatility in cryptoasset price movements; and
- inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them.
The FCA believes that these features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products.
The FCA is consulting on banning the sale, marketing and distribution to all retail consumers of all derivatives (i.e. contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.
The FCA estimates the potential benefit to retail consumers from banning these products to be in a range from £75 million to £234.3 million a year.
This FCA consultation follows Policy Statement (PS19/18) published on 1 July 2019, which finalised rules restricting the sale of CFDs and CFD-like options to retail clients.
In January 2019, the FCA also consulted on Guidance on Cryptoassets (CP19/3) to clarify what types of cryptoassets fall within its current regulatory perimeter, which closed on 5 April 2019. The FCA expects to publish its Final Guidance on Cryptoassets later in the summer.