The Financial Conduct Authority has confirmed that it will ban the sale, marketing and distribution of Bitcoin and other crypto-derivative products to ordinary retail investors. The prohibition will take effect on January 6 2021.
The ban encompasses any derivatives – such as contracts for difference, options and futures – or exchange traded notes that track unregulated transferable crypto-assets. Derivatives themselves have no value and take their value from an underlying asset. An investor could take out a Bitcoin derivative and benefit from increases in the currency’s value but would never actually own the currency itself.
Essentially, anyone other than an investment professional is likely to be classed as an ordinary retail client for the purposes of this ban.
The regulator says that the principal reasons for the ban include:
- The fact that the underlying assets associated with these investments cannot be reliably and accurately valued
- The prevalence of market abuse and financial crime in the secondary market associated with these products
- The extreme volatility in crypto-asset price movements
- The lack of understanding of these products amongst the general population
- The lack of legitimate investment need for retail consumers to invest in these products
- The risk of retail consumers suffering harm from sudden and unexpected losses
As an example of the volatility associated with these investments, the estimated value of Bitcoin rose from $1,000 per coin in early 2017 to $20,000 before the end of the year. However, before the end of 2018, the value had plummeted once again to $3,000. The value has risen above $10,000 on two occasions since then, so the volatile nature of this currency has certainly continued.
The FCA estimates that retail consumers will save around £53 million as a result of these measures, which is lower than it previously estimated when the ban was first proposed.
This is not a ban on the direct purchase of Bitcoin and other crypto-currencies.
Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA, said:
“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.
“Significant price volatility, combined with the inherent difficulties of valuing crypto-assets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”
James McManus, chief investment officer of online platform Nutmeg, said:
“These crypto assets have generated a lot of media hype, but the reality is, it is very difficult for anyone to reliably assess the risks associated with them, not to mention that crypto-derivatives remain unregulated by the FCA.”
The FCA has previously banned complex products such as mini-bonds and Collective Investment Schemes from being promoted to ordinary retail investors.
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