The UK’s financial watchdog is looking to protect retail clients by banning the sale, marketing and distribution of derivatives and exchange-traded notes (ETNs) referencing unregulated transferable cryptoassets.
The Financial Conduct Authority estimates the potential benefit to retail consumers would range from £75m ($94.3m, €85.3m) to £234.3m a year.
The FCA said it is intervening due to:
- The inherent nature of the underlying assets, which have no reliable basis for valuation;
- The market abuse and financial crime in the secondary market for cryptoassets (cyber theft);
- The extreme volatility in cryptoasset price movements;
- The lack of transparency of, and potentially significant impact on returns from, costs and charges; and
- Inadequate understanding by retail consumers of cryptoassets and the lack of a clear need for investment products referencing them.
Following a trend
Crypto was the investment craze of 2017.
On 17 December 2017, bitcoin’s price briefly reached its all time high of $19,783 (£15,739, €17,526) before dramatically flat-lining weeks later.
As of midday on 3 July 2019, the price of bitcoin was $11,328.
Consultation
The regulator is launching a consultation and is looking for feedback by 3 October 2019.
It will seek to publish a final policy statement and final handbook rules in early 2020.
The consultation is aimed at:
- Firms issuing or creating products referencing cryptoassets;
- Firms distributing products referencing cryptoassets, including brokers and investment platforms, and financial advisers;
- Firms marketing products referencing cryptoassets;
- Operators of trading venues and platforms; and
- Retail consumers and consumer organisations.
The UK watchdog will consult with national competent authorities (NCAs) in other EU member states that might be affected by its proposals, but it does not expect them to have a “discriminatory effect on services or activities provided from another member state”.
It has sought data from the Cyprus Securities and Exchange Commission (CySEC) to assess the impact of its measures, as the FCA has identified firms in the country are among those most commonly selling products referencing cryptoassets into the UK.
Crackdown
This proposal follows news that the FCA is restricting the sale, marketing and distribution of contracts for difference (CFDs) and CFD-like options to retail customers.
Which includes setting leverage limits of 2:1 on CFD referencing cryptocurrencies.
The UK watchdog proposed limiting the sale of these products, along with binary options, in December 2018.
Unreliable knowledge
Christopher Woolard, executive director of strategy and competition at the FCA, said: “As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers.
“These are complex contracts built on top of complex assets.
“Most consumers cannot reliably value derivatives based on unregulated cryptoassets. Prices are extremely volatile and as we have seen globally, financial crime in cryptoasset markets can lead to sudden and unexpected losses.
“It is therefore clear to us that these derivatives and exchange traded notes are unsuitable investments for retail consumers.”
