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UK FCA set to ban the sale of crypto derivatives to retail users in January

UK FCA set to ban the sale of crypto derivatives to retail users in January

Quick take

2 minute read

  • The financial conduct authority in the United Kingdom has officially banned the sale of critical and see derivatives and exchange-traded notes to retail users earlier this week in a surprising announcement. 
  • This ban will come into effect next year on the 6th of January and has let down many in the crypto community.

The financial conduct authority in the United Kingdom has officially banned the sale of critical and see derivatives and exchange-traded notes to retail users earlier this week in a surprising announcement. This ban will come into effect next year on the 6th of January and has let down many in the crypto community.

As the sale of cryptocurrency derivatives and exchange-traded notes to retail users is now officially banned within the United Kingdom, the FCA has said given the reasons to make such a move. 

The main reason was due to the lack of reliability in that sector as they further say it is because of the:

  • inherent nature of the underlying assets, which means they have no reliable basis for valuation
  • prevalence of market abuse and financial crime in the secondary market (eg cyber theft)
  • extreme volatility in cryptoasset price movements
  • inadequate understanding of cryptoassets by retail consumers
  • lack of legitimate investment need for retail consumers to invest in these products 

The interim executive director of strategy and competition at the FCA, Sheldon Mills said the following on the ban.

“This ban reflects how seriously we view the potential harm to retail consumers in these products."

Consumers are estimated to save around $68 million after this ban comes into place on the 6th of January 2021. Not only will this action have a big impact on derivative exchanges but also crypto brokers, financial advisors and even investment platforms.

In a separate policy statement, the conduct authority said the following:

"If your firm carries out marketing, distribution or selling activities in, or from, the UK of the relevant products to retail clients, you are required to cease these activities by 6 January 2021. Retail consumers with existing holdings can remain invested following the prohibition, until they choose to disinvest. There is no time limit on this, and we do not require or expect firms to close out retail consumers’ positions unless consumers ask for this."



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