Good news: FCA considers a ban of crypto-CFDs for retail investors

In a recently published document, titled “Restricting contract for difference products sold to retail clients,” the FCA revealed that the regulator will soon publish a consultation paper (CP) on a potential ban on crypto derivatives. According to an FCA statement, the agency is proposing rules to address harm to retail investors from crypto-derivatives and exchange-traded notes (ETNs) referencing cryptoassets. The FCA considers these products are dangerous to retail consumers who cannot reliably assess the value and risks of derivatives or ETNs that reference certain cryptoassets (crypto-derivatives). This is due to:

  • inherent nature of the underlying assets, which have no reliable basis for valuation
  • the prevalence of market abuse and financial crime in the secondary market for cryptoassets (eg cyber theft)
  • extreme volatility in cryptoasset prices movements, and
  • inadequate understanding by retail investors of cryptoassets and the lack of a clear investment need for investment products referencing them

The FCA is, therefore, consulting on banning the sale, marketing, and distribution of these crypto-based financial instruments to all retail consumers. The FCA expects the potential benefit to retail consumers from the banning to be in a range from £75 million to £234.3 million a year.

FCA’s intention is welcome in view of the massive fraud that has taken place in recent years over Forex retail platforms in general and crypto-based financial products in particular.

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