FCA Bans Crypto Derivatives trading in the United Kingdom

The FCA has banned the sale of cryptocurrency derivatives to retail customers in the United Kingdom. The ban is expected to come into effect on January 6, 2021. According to a press release by the FCA, the regulatory body believes that cryptocurrency derivatives are ill suited to retail customers and highlighted a number of factors.

This includes the absence of reliable valuation, extreme price volatility as well as the lack of understanding of crypto assets by the retail customers. The FCA also said that there were no legitimate reasons for retail customers to invest in derivative assets.

To mitigate these risks to retail customers, the FCA has banned the sale, marketing and distribution of derivative products. The ban is binding to all firms within the United Kingdom and those acting from the UK.

Speaking about the ban, the interim executive director of strategy and competition at the FCA, Sheldon Mills believes that the ban is a reflection of how the regulatory body views derivative products as a potential harm to retail consumers.

He further added that there were several risk factors that made it difficult for retail consumers to benefit from trading derivatives. He said:

Significant price volatility, combined with the inherent difficulties of valuing crypto assets 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.

Announcement comes after BitMEX controversy

The FCA announcement comes less than a week after American regulatory body CFTC charged popular crypto derivative exchange BitMEX with money laundering activities as well as operating an unregistered trading platform.

Following these accusations, the district attorney filed criminal charges against the exchange owners Arthur Hayes, Ben Delo and Samuel Reed and arrested its CTO. This news caused a stir within the crypto community with traders rushing to withdraw their funds from BitMEX.

Crypto derivatives has long been a bone of contention in the UK with the FCA having mulled about the idea of banning derivatives trading in 2019. The FCA believes that the ban will save retail customers around $69 million yearly.