Last week, the UK Financial Conduct Authority announced a ban on the sale of crypto derivatives and exchange-traded notes (ETNs) that for retail investors. The ban, which goes into effect on January 6, 2021, has no impact on spot trading of cryptoassets.
Some crypto-industry insiders criticized the move by the securities regulator saying the “ban kills off what could have been a new investment opportunity for sophisticated retail investors” adding that it sends a negative signal regarding the UK’s stance on cryptoassets.
Another insider called the FCA’s decision “a drastic one,” wondering if alternatives had been explored.
Of course, the FCA pointed at investor protection concerns and the lack of understanding in the complex market as well as the prevalence of fraud.
Today, we have one crypto-industry participant that welcomes the decision to block retail from crypto derivative products.
Coinpass, a crypto-exchange operating in the UK, has embraced the decision. Jason Fitzpatrick, CFO of Coinpass, said oversight of cryptoassets in the UK is a move welcomed by the market in general:
Over the last two years, the FCA has made several policy changes including rigorous registration procedures for UK providers, clarification on which crypto assets are regulated investments, and are now also reviewing financial promotions offered by crypto-asset providers.
As of 6th January 2021, the FCA will introduce a new ban on the sale of derivatives and exchange-traded notes (ETNs) that reference certain types of crypto assets to retail consumers. Although the “ban” seems harsh to some market participants, it brings crypto assets in line with other specified investments currently within the FCA regime, and should therefore provide welcomed protection to retail consumers from trading a derivative of a product with significant price volatility.
Derivative products are traditionally used by professional investors to access and gain leverage of financial instruments without having to hold or custody the underlying asset. Crypto assets are digital in nature, easy to access, and prone to significant price movements, hence derivative crypto assets in some respects are not suitable or even required by retail investors.
The final crypto-asset arena within the UK (although not finalized) is making strides in the right direction with the introduction of KYT tools, trade associations, registration, and a defined regulated set of rules, all of which can only bring legitimacy to the UK crypto asset market.