FCA Ban on Crypto Derivatives Goes Into Effect Today

Jafrin  |  Jan 6, 2021

UK’s Financial Conduct Authority (FCA) ban on crypto-based products for retail investors goes into effect from today. The regulatory agency had initially announced the ban in October 2020. According to the FCA, crypto-based products are ill-suited to retail customers due to their volatility, financial crimes, price volatility, as well as customer’s lack of understanding of crypto assets. Many from the crypto industry, however, have been critical of FCA’s decision.

FCA Ban on Crypto Derivatives Effective from Today

The regulatory agency’s ban includes not only investments of crypto-based products but also the sale, marketing, and distribution of any crypto derivatives products including options and futures.

The FCA believes that crypto-based products could harm investors due its sudden and unexpected losses. However, many in the crypto space are critical of the FCA’s decision. Industry experts have raised concerns that it will instead drive consumers onto unregulated exchanges or even offshore, beyond the FCA’s reach.

Dermot O’Riordan, partner of Eden Block, comments on FCA's inability to lead:

“By banning crypto derivatives, the FCA is basically indicating that they don’t know how to regulate this. FCA has chosen to abdicate rather than lead.” 

FCA Believes Ban Might Benefit the Digital Asset Market

In the opposite spectrum, the U.S. Commodity Futures Trading Commission (CTFC) has been regulating crypto derivatives markets for both retail and professional investors for over three years.

Meanwhile, according to Gunnar Jaerv, COO of First Digital Trust, the ban could actually benefit the digital asset market:

“More people would have to buy the ‘actual’ assets meaning that there would be real money going into the assets and will be priced into the market. Theoretically, this would then mean that prices could be more stable, volumes and market cap would increase and thus increasing prices of the digital assets.” 

The FCA anticipates positively that retail customers will save over £53 million ($70 million) due to the ban on crypto-based products.

Related News