FCA new

“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

The FCA has banned the sale of a swathe of cryptocurrency investments to retail investors in the UK.

The FCA has published final rules banning the sale of derivatives and exchange traded notes (ETNs) that reference certain types of cryptoassets to retail consumers.

The FCA considers these products to be “ill-suited” for retail consumers due to the harm they pose.

The regulator said these products cannot be reliably valued by retail consumers because of the inherent nature of the underlying assets, which means they have no reliable basis for valuation, as well as the prevalence of market abuse and financial crime in the secondary market (e.g. cyber theft).

The FCA also noted the “extreme volatility” in cryptoasset price movements and the inadequate understanding of cryptoassets by retail consumers.

The FCA found no legitimate investment need for retail consumers to invest in these products.

Unregulated transferable cryptoassets are tokens that are not ‘specified investments’ or e-money, and can be traded, which includes well-known tokens such as Bitcoin, Ether or Ripple.

To address these harms, the FCA has made rules banning the sale, marketing and distribution to all retail consumers of any derivatives and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.

The FCA estimates that retail consumers will save around £53m from the ban on these products.

The ban will come into effect on 6 January 2021.

Sheldon Mills, interim executive director of strategy and 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.

“Significant price volatility, combined with the inherent difficulties of valuing cryptoassets 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.”

Richard Berry, founder of goodmoneyguide.com, commented: “Britain’s financial regulator has had cryptocurrencies in its sights for years. Finally it has pulled the trigger. While it’s no misfire, the FCA’s shot is all but certain to miss its mark.

“To be clear, it has not banned cryptocurrencies themselves, but a set of complex and poorly understood derivatives that track unregulated crypto assets.

“While such highly leveraged investments can deliver big returns, they can also – and frequently do – deliver crippling losses far in excess of the original amount invested.

“The FCA has taken the view that retail investors need protecting from such high-risk investments, based on the not unreasonable assumption that most won’t grasp just how volatile they are.

“But the real danger is not the investments themselves, but the network of scammers and get-rich-quick merchants who peddle them online and through high-pressure cold calls.

“The FCA would have done better to go after the snake oil salesmen who reel in the unsuspecting via Instagram feeds packed with pictures of flash cars, jewel-encrusted watches and wads of cash.

“Sadly the FCA’s ban will barely touch most such scammers, who will remain free to flog the same unregulated investments as long as they are traded on a non-UK exchange.

“Given the scammers aren’t big on small print anyway, this change won’t cramp their style. People will continue to be conned out of their money until the FCA acts to hold the social media platforms used by the scammers accountable for the fraud they enable.”