UK's FCA bans retail crypto derivatives after year-long consideration

In a landmark decision issued on Tuesday by the United Kingdom’s Financial Conduct Authority, companies in the country will no longer be able to offer cryptocurrency derivatives products such as futures, options and exchange-traded notes, or ETNs, to retail customers.

The decision comes almost exactly one year after the regulator first proposed banning these products. In a statement released by the FCA, the regulator claimed that cryptocurrency derivatives are “ill-suited for retail consumers due to the harm they pose.”

Several reasons are provided for more detail, including concerns that they have “no reliable basis for valuation,” are subject to abuse and financial crimes, and are extremely volatile.

Further motivations cited include the “inadequate understanding of cryptoassets by retail consumers” and a claim that retail investors lack a “legitimate investment need” for these products.

The ban will come into effect on Jan. 6, 2021. The regulator warned that “as the sale of derivatives and ETNs that reference certain types of cryptoassets to retail consumers is now banned, any firm offering these services to retail consumers is likely to be a scam.”

The regulator said that this measure would “save around £53m” ($62.5 million) for retail consumers, presumably because of avoiding trading losses.

“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

One of the companies hit hardest by the ban will be CoinShares, which last year mounted a campaign to convince the regulator to abandon its plans. CoinShares offers ETNs and other types of crypto products aimed at traditional markets.