Top U.K. Financial Watchdog: Let’s Ban Crypto Derivatives for Retail Investors
The Financial Conduct Authority, the United Kingdom’s top financial regulator, is moving against cryptocurrency derivatives products being accessible to everyday consumers.
The watchdog, which works independently of the U.K. government, announced on July 3rd it was proposing to ban the “sale, marketing and distribution” of cryptocurrency-based exchange-trade products (ETPs) and derivatives — for example, futures offerings — to “all retail consumers.”
The FCA has followed up the proposal — whose underlying work began last fall — by opening a consultation period in which a wide variety of industry participants can provide their positions on the would-be ban.
The authority cited companies that create or market crypto derivatives, exchanges, and retails investors as among the types of stakeholders suited for submitting feedback.
Why Ban Crypto Derivatives?
In their Wednesday announcement, the FCA said the ban proposal was driven by a concern that retail investors weren’t savvy enough to “reliably assess the value and risks” of cryptocurrency derivatives.
The authority said concerns over consumer incompetence stemmed from their perception that cryptocurrencies bear “no reliable basis for valuation”; are vulnerable to market manipulation; have a propensity for extreme volatility; and fail to demonstrate a “a clear investment need for investment products referencing them.”
In other words, the FCA thinks average investors shouldn’t have anything to do with crypto derivatives. The watchdog estimated that a ban on such products could save as much as £75m annually by preventing domestic consumers from losing funds.
The authority will process the feedback and make a final decision after the consultation period closes on July 10th. If the ban is green-lighted, the FCA will develop an official policy and formally publish it in the first quarter of next year.
It seems the restrictions are more likely than not for now, if the watchdog’s already developing arguments are any indication. “There is growing evidence that cryptoassets are causing harm to consumers and markets,” the FCA said in its ban proposal.
FCA Outlined Three Token Types Earlier This Year
In January, the FCA released a consultation advisory in which it put forth tentative standards for what types of tokens were within its jurisdiction.
In that advisory, the authority outlined what it saw as the three main types of cryptocurrency tokens: exchange tokens, utility tokens, and security tokens.
Exchange tokens were said to be ones like bitcoin (BTC) and ether (ETH), whereas utility tokens were crypto assets that performed specific utilities on their respective networks. The FCA went on to argue that only security tokens fell within its jurisdiction, and that tokens could only be securities if they literally functioned like a debt instrument or a company share.
At the time, legal experts in the cryptoeconomy applauded the nuance and implications of the authority’s classifications. The FCA’s new ban proposal on crypto derivatives shows the watchdog is also perfectly willing to disallow what it views as dangerous crypto investments where it can.
FCA Gives Out First License to Crypto Managers
In a first-ever milestone, the U.K. financial regulator approved an operational license for a cryptocurrency asset management firm.
That firm, Prime Factor Capital, is headquartered out of London and manages cryptocurrency investments previously capped at the €100 million euro mark. With that FCA license now in tow, the hedge fund can expand its assets under management (AUM) higher than that threshold.
The license officially slots the firm as an alternative investment fund manager within the European Union — a dynamic that means the fund can now also expand its reach further into Europe.
With the company having paved the way toward FCA licensing, other similarly crypto-minded funds will certainly follow in its wake to achieve the regulator’s blessings.
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William M. Peaster, Khareem Sudlow