FCA Considering Ban On Crypto Based Derivatives

Cryptocurrency derivatives are a relatively new product in the UK market that is still looking to establish itself.

However, crypto based derivatives may not have the time to do so as the UK financial watchdog has turned its attention to this financial product.

The UK's Financial Conduct Authority (FCA) is already considering a ban on these financial products – which would be a big blow to the crypto based derivatives market. This would be the first major move against cryptocurrency derivatives by any financial authority.

Concerns On Lack Of Regulation

The FCA announced its plans to roll out a potential ban earlier this week. The FCA confirmed that it would be launching a consultation in the first three months of 2019 to see whether the sale of cryptocurrency-based derivatives to retail investors should be prohibited. This would cover options, futures and contracts for difference.

This announcement was combined with the release of the report from the Cryptoasset Taskforce. The taskforce was made up of people from the Bank of England, the FCA and the UK treasury who have been reviewing the unregulated crypto market for its vulnerability to fraud and manipulation. They also investigated how criminals could use it to launder money. The FCA announcement made it clear that the watchdog still views crypto assets as a very risky proposition and that investors should be prepared to lose what they invest into crypto derivatives. The regulator was also concerned that they may present a threat to future financial stability of the country.

The accompanying report also pointed out that crypto-based derivatives are a lot riskier than normal cryptocurrency assets in the market. This is because they can cause additional losses that are higher than the original investment and can potentially be the target of extra fees.

Increasing Popularity

This move to regulate crypto-based derivatives is in response to their increasing popularity. Recent trading on these derivatives have helped boost the revenues of several online trading platforms like the IG Group. Since these derivatives are considered financial instruments, the FCA technically is in charge of them – though it still does not have clear authority on cryptocurrencies since they can be used as both as a means of exchange and an investment tool.

In a statement, the FCA said

Given the complexity and new challenges presented to traditional forms of financial regulation, more time is needed to consider how regulation can meaningfully address the risks posed by exchange tokens, such as bitcoin.

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