A year after it threatened to ban the sale to retail clients of contracts based on bitcoin and other cryptoassets, the UK’s financial markets regulator has put its words into action.
Earlier today, the Financial Conduct Authority published final rules preventing exchange-traded note issuers and derivatives firms from offering cryptoasset trackers to the general public. The ban which comes into effect on 6 January, covers firms acting in, or from, the UK.
Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA, said: ‘This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”
“Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives,” Mills said.
“We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”
“The ban provides an appropriate level of protection”
In imposing the ban, the FCA overruled the vast majority of the 527 respondents to its initial consultation on the subject, published last summer.
According to the regulator, 97 percent of respondents had opposed its proposal, arguing that cryptoassets have intrinsic value, that retail consumers are capable of valuing them and that a prohibition was disproportionate.
In its policy statement, the FCA said that cryptoassets are intrinsically different from other assets that have physical uses, promise future cash flows or are legally accepted as money.
“Cryptoassets are opaque, complex and unreliable as reference assets”
“We concluded that cryptoassets are opaque, complex and unreliable as reference assets for investments for retail consumers,” the regulator said.
The ban will affect exchange-traded note (ETN) providers such as CoinShares and contract for difference (CFD) firms like IG Index, City Index, CMC and Plus500.
However, the ban will not affect UK consumers who wish to purchase cryptoassets on an exchange and own them directly.
Several cryptocurrency exchanges, including Coinfloor, Coinbase, Kraken and Bitstamp, allow UK-based customers to deposit and withdraw funds in pounds sterling, as well as taking possession of the private keys which confer ownership of cryptocurrency.
Popular money app Revolut is also unaffected by the ban. It allows UK customers to buy and own bitcoin and other cryptocurrencies using sterling within the app, though not to withdraw their holdings to external wallets.
Funds held at Revolut in cryptocurrency are also not safeguarded, unlike clients’ electronic money held by the firm in fiat currency.
“The EU, the US, Canada and Switzerland are all on a positive path, leaving the FCA as a non-competitive island”
Daniel Masters, executive chairman at CoinShares, which has more than $1bn outstanding in bitcoin and ethereum trackers, criticised the FCA’s move.
“This will run the 24-hour news cycle and vanish,” Masters told New Money Review.
“The price of bitcoin is unchanged, showing the market’s indifference,” Masters went on.
“The EU (via ESMA), the US, Canada and Switzerland are all on a positive path, leaving the FCA as a non-competitive island,” he said.
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