The UK Financial Conduct Authority (FCA) has banned the sale of cryptocurrency derivatives and exchange-traded notes (ETNs) to retail traders.

FCA believes these products are not suitable for retail investors for a number of reasons:

  • 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 cryptoasset price movements
  • inadequate understanding of cryptoassets 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, said: “This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

According to the regulator, the ban will help reduce losses for retail investors in the amount of 19 million to 101 million pounds per year.

The new rules concern:

  • companies issuing crypto derivatives;
  • their suppliers, including brokers, investment platforms, and financial advisors;
  • firms promoting such products;
  • operators of trading platforms;
  • retail consumers and consumer organizations.

The ban comes into force on January 6, 2021.

The FCA launched an initiative to prohibit retail investors from selling cryptocurrency derivatives back in 2018. The regulator began consultations on this issue last year.