There are signs that the Financial Conduct Authority (FCA), UK’s financial regulator might not be too cozy with Bitcoin, crypto derivatives products and their risk to average and unsophisticated investors.
In its latest policy update, the British regulator said it plans to place an outright ban on financial instruments linked to digital cryptocurrencies because of their volatility and lack of in-depth knowledge from a typical audience.
These financial products are often times links to the value of a digital currency such as Bitcoin or Ethereum. However, because of their highly volatile nature, a lot of money could go down the drain in the process.
The FCA said in the statement that derivatives and exchange-traded notes (ETNs) that reference crypto-assets were “ill-suited” to small investors.
They are also of “extreme volatility”, the difficulty in valuing them, consumers’ patchy understanding of what they were buying and the increased risk of financial crime.
In his further explanation on the proposed ban on crypto derivatives, Christopher Woolard, the executive director of strategy and competition at the FCA, said: “As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.
“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.”
“It is therefore clear to us that these derivatives and exchange-traded notes are unsuitable investments for retail consumers,” he said.
In its estimation, the FCA said that a ban would benefit consumers to the tune of between £75m and £234.3m a year.