The UK’s financial markets regulator, the Financial Conduct Authority (FCA), is exploring steps to completely ban cryptocurrency derivatives products. According to FCA, derivatives products such as CFDs, Futures and Options along with Exchange Traded Notes (ETNs) are ill-suited to retail customers.
The FCA has cited four reasons for its stance:
- Inherent nature of the underlying assets with no reliable basis for valuation
- Market abuse and financial crime in the secondary market for crypto assets
- Volatility in crypto asset prices movements, and
- Inadequate understanding by retail consumers of crypto assets
The regulator reckons that it will potentially save retail customers anywhere between £75 million to £234.3 million a year if the ban is put in place.
It is surprising that UK’s financial watchdog is considering a ban on cryptocurrency derivatives. Such products are typically sued by more sophisticated investors who tend to understand the risks associated with leverage. It is also in contrast to other advanced markers, notably the US, where Bitcoin Futures is a thriving market.