UK's Financial Conduct Authority bans sale of cryptocurrency derivatives to consumers

The regulator said outlawing such sales will prevent about $69m in losses by retail investors a year

Britain’s financial watchdog has banned the sale of cryptocurrency derivatives, saying they have no value for ordinary investors.

The Financial Conduct Authority, which first proposed a ban in July 2019, said prohibition would prevent £53 million ($69m) a year in losses for retail investors once it comes into force on January 6. Customers with existing holdings will be allowed to remain invested for as long as they wish.

Shares of the spread-betting firms that offer the derivatives slid in London trading. CMC Markets fell as much as 6.2 per cent before reversing most of the decline, Plus500 fell as much as 3.7 per cent and IG Group dropped as much as 3.8 per cent

“We anticipate no material impact resulting from this announcement as these products form a very small part of our diversified and global business,” IG Group said in a statement. IG and Plus500 both said less than 1 per cent of their revenues would be affected.

CMC said cryptocurrencies globally made less than 2 per cent of its net operating income in the last financial year and these changes would only affect its UK retail customers.

Leverage limits introduced for contracts for difference on cryptoassets in 2018 have gone some way to reducing harm, the FCA said, yet investors were still losing significant sums on the products and the restrictions “do not address the concerns we have with the underlying cryptoassets and retail consumers’ inability to value these derivatives reliably”.

The ban does not apply to trading the cryptocurrencies themselves. Bitcoin and Ethereum are not regulated by the FCA.

“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,” said Sheldon Mills, interim executive director of strategy and competition at the FCA.

“We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”