FCA proposes a ban on the sale to retail consumers of derivatives of ETNs on cryptoassets

The UK’s Financial Conduct Authority (FCA) is proposing new rules to address harm to retail customers over the sale of derivatives and exchange traded notes (ETNs) through cryptoassets.

The FCA considered the products are not suitable for retail consumers who cannot reliably assess the value and risks of derivatives or ETNs that reference certain cyrptoassets, it said.

It believes this due to the inherent nature of underlying assets which have no reliable valuation, the prevalence of market abuse and financial crimes, the extreme volatility of crypto prices, and an unsuitable understating of the crypto market from consumers.

These leave consumers at risk of unexpected losses from investments.

As a result, the FCA is consulting on banning the sale, marketing, and distribution to all retail consumers of all derivatives and ETNs which reference unregulated transferable cryptos of firms acting in or from the UK.

Estimates from the FCA claim the potential benefit to retail customers from banning these products would range from £75m to £234.3m.

Christopher Woolard, executive director of strategy and competition at the FCA, said, “As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.

“Most consumers cannot reliably value derivatives based on unregulated cryptoassets. Prices are extremely volatile and as we have seen globally, financial crime in cryptoasset markets can lead to sudden and unexpected losses. It is therefore clear to us that these derivatives and exchange traded notes are unsuitable investments for retail consumers.”

Earlier in the year, the FCA consulted on guidance of cryptoassets to clarify what types of cryptoassets fall under their regulatory perimeter.

In addition to this, the FCA has released consumer warnings to inform them around risks associated to direct and indirect investments of cryptos.

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