Following the announcement by the Financial Conduct Authority (FCA) in October 2020 to restrict the sales of crypto derivatives to retail consumers, the ban has gone into effect from today, January 6, 2021. What this means is that CFDs, options, ETNs, and futures that reference cryptocurrencies can no longer be offered to retail investors in the U.K.
According to its earlier press release, the FCA described crypto derivatives as “ill-suited for retail consumers due to the harm they pose. The agency gave several reasons why these classes of offers should not be accessible to retail investors. For one, they believe that cryptocurrencies have “no reliable basis for valuation.” This is in addition to the extreme volatility of the assets and a supposed inadequate understanding of crypto assets by retail consumers.
To drive home its ban, the regulator claimed that the restriction will save retail investors up to £53m.
But despite the perceived valid points the regulators may have given, industry commentators believe that no form of restriction or regulation could stop retail investors. Rather, such bottlenecks would only drive consumers onto unregulated exchanges or offshore.
Speaking on the matter, Dermot O'Riordan of Eden Block criticized the FCA’s ban on crypto derivatives. He said:
It’s a shame because the only players that actually are regulated (or want to be) to offer crypto derivatives products to retail (Coinshares, Crypto Facilities, etc.) are generally good actors. This move will drive retail users to unregulated platforms like Deribit and BitMEX who will offer even less protection than the regulated players. So, it’s not clear how the average retail user wins in this scenario.
In response to the ban, some blockchain offers are already boycotting U.K. residents.