Uk’s Ban on Crypto Derivatives to Hurt Investors, Not Protect them

Following the decision of the U.K’s Financial Conduct Authority (FCA) to ban the sale of crypto derivatives and exchange-traded notes (ETNs) to retail investors, financial experts are saying the decision will hurt investors and not protect them.

In a statement issued about a week ago, the FCA had said it considers certain types of crypto assets to be ill-suited for retail consumers due to the fact that they cannot be reliably valued by retail consumers because of the following 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 (e.g., cyber theft)
  Extreme volatility in crypto asset price movements
• Inadequate understanding of crypto assets by retail consumers
• Lack of legitimate investment needs for retail consumers to invest in these products.

According to the UK regulator, the ban will affect “the sale, marketing and distribution” to retail investors of any derivatives contract or ETNs that linked to “unregulated transferable crypto assets” issued by entities in or outside the U.K.

The regulator further classifies unregulated transferable crypto-assets as “tokens that are not ‘specified investments’ or e-money, and can be traded.” The term incorporates major cryptocurrencies like bitcoin, ether and XRP.

The new ban will be effective from January 6, 2021, according to the statement.

However, experts are now saying the ban will not protect investors but hurt them as they will not be able to take advantage of market opportunities like their global peers.

Nigel Green, chief executive and founder of deVere Group, has this to say, “This move by the FCA underscores the regulator’s rather misguided approach to cryptocurrencies.

“Whilst the FCA is not stopping people buying Bitcoin or other cryptocurrencies directly, it is banning the sale of products based on their prices.

“The regulator does express some valid concerns in its new rules, which we welcome and support.

“However, rather than banning, the FCA should be regulating the booming and unstoppable sector.

“This market, thanks to its exponential growth, needs a robust and enforceable regulatory framework. It needs scrutiny.”

The deVere boss added that “The staggering pace of the digitalisation of economies and every aspect of our lives highlights that there will be a growing demand for digital, global, borderless money.

“Already digital currency is almost universally regarded as the future of money – and we need a joined-up approach to tackling those who undermine it.

“In this regard, most major financial institutions globally already have or are preparing to establish crypto desks. It is why more and more retail and institutional investors are piling into the market. And it is why tech giants, like Facebook, amongst others are getting involved.”