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A Retail Ban On Crypto Derivatives Being Proposed By UK Markets Watchdog

A Retail Ban On Crypto Derivatives Being Proposed By UK Markets Watchdog
The possibility of the prevalence of market abuses is driving the United Kingdom markets watchdog to propose a ban on the sale of derivatives that are based on crypto-assets to retail consumers as early as form the beginning of 2020.
The Financial Conduct Authority of the UK said on Wednesday that there is a lack of a clear investment need for products referencing crypto currencies because these are very volatile as assets. Such cryptocurrencies include digital currencies such as bitcoin as well as tokens that represent other tradeable assets.
The FCA “considers these products are ill-suited to retail consumers who cannot reliably assess the value and risks of derivatives or exchange traded notes (ETNs) that reference certain crypto-assets,” it said in a statement on its public consultation on the proposed ban.
However, Jake Green, a financial regulatory partner at law firm Ashurst said that customers would be forced to look into unregulated providers offering less protection because of such a blanket ban on crypto derivatives. “The real question is whether the FCA is shooting itself in the foot,” Green said.
The assets that underpin the derivatives do not possess any reliable basis for valuing and there was a “prevalence of market abuse and financial crime” in the secondary market for crypto-assets, such as cyber theft.
A total of 13 warnings about unauthorized companies engaged in crypto-assets have so far been published by the FCA this year and the body was conducting 10 probes that are currently ongoing till June which are all related to companies that were engaged in the “immature asset class”.  “We estimate the potential benefit to retail consumers from banning these (derivative) products to be in a range from 75 million pounds ($94 million) to 234.3 million pounds a year,” it said.
The FCA said that the main derivative product that makes use of crypto-assets as their underlying basis are the so-called contract-for-differences (CFDs) and between August and October 2017, those derivatives accounted for a total of about 3.4 billion pounds in retail customer business. But following the EU regulators imposed implementing temporary restrictions, the figure dropped to 77 million pounds in the same period in 2018. During the period, it was also hit by significant drops in values of crypto-asset.
A set of temporary curbs on the sale of all types of CFDs to retail customers was made permanent earlier this week by the FCA in a separate development.
The FCA said that a little over 13,000 retail clients traded the products offered by two UK firms on a monthly to December last year. These two companies offer futures contracts on exchange tokens versus the dollar. It further said that this trend is getting past the reach and scope of the securities rules of the European Union. Its ban is set to come into force after Oct. 31, the scheduled deadline for Britain’s EU departure.
“We do not consider that existing regulatory requirements, including product governance, appropriateness and disclosure requirements, can sufficiently address our concerns about the harm posed by these products,” the FCA said

Christopher J. Mitchell

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