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Richard Adrian
Jul 4, 2019
by Richard Adrian

Financial Conduct Authority FCA Claims Crypto Assets are Ill-Suited for Small Investors

FCA

Table of contents

  1. FCA Consumer Protection
  2. Conclusions
U.K regulator has proposed plans to ban cryptocurrency derivatives. The Financial Conduct Authority (FCA) cited crypto assets as extremely volatile and therefore risky for small scale retailers. In fact, the regulator thinks small traders cannot effectively assess the value and risks of crypto investment products. 

 

FCA stated that the ban will prohibit sale, marketing, and distribution” of “all derivatives. These derivatives comprise of contracts for difference (CFDs), options, futures, and ETNs. All of which relate to a transferable crypto asset with no regulation. 

 

Cryptocurrency derivative platforms that will be affected by the ban include platforms such as BitMex. As pertains a press statement released by the authority - the potential estimate of benefits to retail consumers; after banning these products is in the range of £75 million - £234.3 million annually. 

FCA Consumer Protection

The regulator claims that cryptocurrency consumers need protection. And since crypto derivative products lack basis for valuation, they are often used to commit cyber crimes, trick unsuspecting customers and have risky volatility. 

The statement went on to add that, 

 

‘As with our work on the wider CFD and binary options markets, we will act when we see firms selling poor products to retailers...'

 

“Most consumers cannot reliably value derivatives based on unregulated crypto-assets. Prices are extremely volatile, and as we have seen globally, financial crime in crypto-asset markets can lead to sudden and unexpected losses’

 

Early on at the beginning of this year; FCA conducted a survey that found out a high percentage of crypto investors do not understand what they are buying. 

BitMex, one of the platforms that could be affected by the ban. Makes available several altcoins and offers a 100X leverage on Bitcoin perpetual swap and futures market. During press time, BitMex insurance fund stands at £264 million worth of bitcoins.

Conclusions

The ban proposal will undergo a series of consultation that could take upto three months; before becoming a reality. Well, CFD will manage to protect investors but we dont think it can stop investors from buying into crypto assets.

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Financial Conduct Authority FCA Claims Crypto Assets are Ill-Suited for Small Investors
Richard Adrian
Richard is a versatile fintech analyst with a deep understanding of blockchain domains. As much as technology fascinates him, he finds the intersection of both technology and finance mind-blowing. The firm belief that fintech will drive the future has brought him to the crossroads of Fintech discoveries and transmission of immutable data to a wider audience.

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