UK markets watchdog proposes retail ban on crypto derivatives

LONDON (Reuters) - Britain’s markets watchdog is proposing banning the sale of derivatives based on crypto-assets to retail consumers from early 2020 due to what it considers the prevalence of market abuses.

Prices of crypto-assets - which include currencies like bitcoin as well as tokens representing other tradeable assets - are very volatile, and there is a lack of a clear investment need for products referencing them, the Financial Conduct Authority said on Wednesday.

The FCA “considers these products are ill-suited to retail consumers who cannot reliably assess the value and risks of derivatives or exchange traded notes (ETNs) that reference certain crypto-assets,” it said in a statement on its public consultation on the proposed ban.

Such a blanket ban on crypto derivatives will force customers to use unregulated providers offering less protection, said Jake Green, a financial regulatory partner at law firm Ashurst.

“The real question is whether the FCA is shooting itself in the foot,” Green said.

There was no reliable basis for valuing the assets underpinning the derivatives, and there was a “prevalence of market abuse and financial crime” in the secondary market for crypto-assets, such as cyber theft.

This year the FCA has published 13 warnings about unauthorized firms involved in crypto-assets, and up to June it had 10 ongoing investigations into firms involved in the “immature asset class”.

“We estimate the potential benefit to retail consumers from banning these (derivative) products to be in a range from 75 million pounds ($94 million) to 234.3 million pounds a year,” it said.