In early January 2021, the Financial Conduct Authority imposed a ban on the sale of retail crypto derivatives: a decision made after a year of consultations and consideration. There were many reasons for this decision, which covers ETNs, futures and options. The FCA decided that such products were highly volatile, were subject to abuse and were hard for consumers to understand – as well as believing that there was no real “legitimate investment need” for such products.
But was this decision the right one?
In October 2020, it was revealed that the FCA ignored 97% of those who responded to its consultation. These 97% – comprising individuals, legal representatives, trade bodies, companies and exchanges involved in crypto derivatives and assets, among others – made the argument that the desired results could be achieved with measures other than a ban. They also believed that there is value in these types of investments, and that this value is easy for retail investors to measure and understand.
Those opposing the ban also accused the FCA of cherrypicking data to justify its decision.
The RPC fights back
In January 2023, the Regulatory Policy Committee (RPC) – a government-sponsored advisory public body – published a document citing the reasons why it disagreed with the FCA’s retail crypto derivatives ban.
The RPC’s cost-benefit analysis calculated the annual losses accrued as a direct result of the ban to be circa £268.5m. In addition, the team behind the document claimed that the FCA had given no indication as to how its own cost-benefit analysis had been calculated – and that they had failed to explain what would happen if the ban had not been implemented.
As a result, the RPC gave the ban a “red” rating – suggesting that the ban was not fit for purpose. While this doesn’t mean that the FCA’s legislation will necessarily be reversed, it puts the issue back into the spotlight and asks the question: what legislation is truly reasonable?
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