By: 9 October 2020

The ban is scheduled to come into effect on 6 January 2021

Crypto-derivatives subject to retail ban in UK

The UK Financial Conduct Authority has banned the sale of crypto-derivatives to retail customers.

The financial services regulator in the UK considers these products to be “ill-suited for retail consumers due to the harm they pose”.

Among the reasons provided for the ban, the UK FCA said crypto-derivatives have no reliable basis for valuation because of the inherent nature of the underlying assets.

There is also a prevalence of market abuse and financial crime in the secondary market, extreme volatility in cryptoasset price movements, inadequate understanding of the assets among retail customers, and a lack of a legitimate need for them to invest in these products.

The ban, scheduled to come into effect on 6 January 2021, prohibits the sale, marketing and distribution to all retail consumers of any derivatives (contracts for difference, options and futures) and exchange-traded notes that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.

The UK FCA estimates that retail consumers will save around £53 million from the ban on crypto-derivatives.

Sheldon Mills, interim executive director of strategy and competition at the UK FCA, said: “This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

“Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”