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Is the UK’s ban on crypto derivatives the right approach?

23/12/2021

On January 6th, 2021, the Financial Conduct Authority imposed a ban on the sale of crypto derivatives to retail investors in the UK. After being proposed in October 2020, the ban on these sales was written into law in January. 

This ban was imposed for many reasons, including market volatility, scams, market abuse, value fluctuations and more. Regarding the ban, the FCA stated, “These features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products”. 

However, is banning crypto derivatives the best way to protect UK investors? 

 

What are other parts of the world doing? 

In late 2021, the US saw the launch of a handful of exchange traded funds linked to Bitcoin futures. These funds, sources say, amassed over $1bn in assets in a very short timeframe – potentially showing that they could be as popular as existing ETFs in Europe and Canada that track both Bitcoin prices and Bitcoin futures. 

 

What are the issues with the UK crypto derivatives ban?

It is clear that other parts of the world are forging ahead in offering carefully regulated cryptocurrency derivatives. Could the FCA’s ban on such products be holding the UK back while the rest of the world steams ahead? 

The main aim of the ban is to protect retail investors from products that are subject to a range of problems, from volatility to financial scams. While it may be easier to spot scams, with UK companies legally not allowed to advertise such products, it is still possible to buy crypto derivatives from international markets, where regulation may not be quite as strict. 

“The retail investor now has to go into often unregulated cryptocurrency exchanges”, says Bradley Duke, chief executive of ETC Group. “It’s a real case of regulation which isn’t actually doing what it’s supposed to be doing. It’s not actually protecting the investor. It’s pushing them into harm’s way.”

While trying to protect investors, could the FCA be paving the way for greater levels of risk when those who want to invest in crypto derivatives turn to alternative markets? And could it be holding the UK back from developing its own share of the crypto derivatives market – a market which has the potential to boom? 

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

 

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