- The FCA has imposed a ban on the sale of crypto-derivatives and ETNs to retail consumers, citing that they are unregulated transferable crypto assets.
- Due to the ban, Hargreaves Lansdown (HL) removed products such as the XBT bitcoin (BTC) tracker from its platform.
The UK Financial Conduct Authority (FCA) recently slammed crypto-derivatives and exchange-traded notes (ETNs). According to them, these have no reliable basis for valuation and have extreme volatility in cryptocurrency price movements.
FCA Bans Sale of ETNs, Crypto-Derivatives
Having said this, the FCA has announced a ban on the products. In fact, the FCA claimed these products are “ill-suited” for retail consumers due to the harm they pose. Notably, the UK’s FCA published and passed proposed changes in October. Moreso, the ban is now active as of Jan 6, 2021.
Crypto-derivatives (i.e. contract for difference – CFDs, options, and futures) and ETNs that reference unregulated transferable crypto assets are banned. In particular, the FCA prohibits the sale to retail clients of investment products that reference crypto assets.
Reasons for the Ban
- Inherent nature of the underlying assets, which means they have no reliable basis for valuation
- Prevalence of market abuse and financial crime in the secondary market (eg cyber theft)
- Extreme volatility in crypto asset price movements
- Inadequate understanding of crypto assets by retail consumers
- Lack of legitimate investment need for retail consumers to invest in these products
Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA also gave a comment regarding the ban.
Significant price volatility, combined with the inherent difficulties of valuing crypto assets 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.
Firstly, the ban will apply to UK-headquartered firms regulated by the FCA including banks and investment firms. Included also are UK branches of overseas firms (including EEA firms). Lastly, EEA firms that use the temporary permissions regime to continue to provide services in the UK post-Brexit.
Traditional financial organizations and asset managers such as Hargreaves Lansdown (HL) took action ahead of the deadline. It has removed products such as the XBT bitcoin (BTC) tracker from its platform.