UK regulators call for ban on financial products linked to cryptocurrency

UK regulators call for ban on financial products linked to cryptocurrency

UK financial regulators are proposing a ban on financial instruments linked to cryptocurrencies like bitcoin, saying they’re “ill-suited” for small investors due to their “extreme volatility” and other risks, The Guardian reported Wednesday.

The ban would prohibit trading platforms from selling, marketing, or distributing derivatives and other instruments linked to “unregulated transferable cryptoassets” such as bitcoin. 

The ban will apply to a range of financial instruments including contracts for difference (CFDs), exchange traded notes, as well as options and futures. 

In addition to their volatility, the UK’s Financial Conduct Authority (FCA) said digital assets have “no reliable basis for valuation,” an increased risk for financial crime in the secondary market, and noted a lack of understanding among consumers of exactly what they’re buying. 

According to the FCA’s executive director of strategy and competition, Christopher Woolard, the cryptocurrency market consists of “complex contracts built on top of complex contracts.”

The FCA said investors could “suffer harm from sudden and unexpected losses if they invest in these products,” and estimated that the ban would save between £75 million and £234.3 million annually for non-professional customers. 

After hitting a low of about $3,000 last year, the price of bitcoin reached nearly $14,000 in recent weeks, after Facebook announced plans to launch its own “Libra” cryptocurrency. Since then, it’s plunged 30 percent to less than $10,000 on Tuesday. 

“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,” Woolard said. 

The US Congress has asked Facebook to halt development of its cryptocurrency while they investigate the impact of such a move. 

A letter to Facebook chiefs, from Democratic heads of the House Committee on Financial Services, warned:

“The scant information provided about the intent, roles, potential use, and security of [Libra] exposes the massive scale of the risks and the lack of clear regulatory protections. If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger US and global financial stability.”

The FCA also said it has already issued 13 warnings to unauthorized firms involved in the cryptocurrency market, with ten ongoing investigations into such matters. 

Woolard said:

“As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to consumers.”

Image by MichaelWuensch from Pixabay