Regulators across the world are making changes to their policies as they seek to accommodate cryptocurrencies. It seems like you can’t go a single day in the crypto space without the SEC charging someone or some country talking about banning cryptos.
But, despite all of this, the growth of this asset class continues, even if it is very slowly. In the midst of all this, one of the groups that have been attracted to Bitcoin and cryptocurrencies are traders. This interest has led regulators to move in the direction of creating guidelines to stay ahead of the public’s growing engagement with crypto assets.
The UK’s Financial Conduct Authority (FCA) is one of the regulatory bodies that has been at the forefront of efforts to provide regulatory frameworks for cryptocurrencies. Many of the regulations that have been proposed by the FCA are negative towards cryptocurrencies and its latest move shows that the regulator is set on imposing strict restrictions on the crypto industry.
Other regulatory actions in the UK include a move we reported on in July; the UK’s plans to crack down on ‘Dirty Money’. Read that full article here.
FCA Considering Blanket Ban
The FCA has just closed a consultation on crypto derivatives products. The regulator has since been clear about its view that many of the traders that engage in the trade of crypto derivatives do not have all the necessary information about the risks that are associated with the asset class.
The FCA is considering a move to impose a ban on the offering of crypto derivatives to retail investors who engage in the trade of cryptocurrencies.
Between 2017 and 2018, crypto traders in the UK lost close to half a billion dollars in crypto related business. Some of these traders lost their funds due to lack of knowledge about what they are doing and some fell victum to crypto related scams.
The FCA’s looming ban comes as a result of the regulator’s perceived ‘need’ to reduce the losses that traders incur when they trade in the asset class. Protecting investors from the possible loss of funds that comes with crypto trading would reduce the annual loss by close to $300 million according to the regulatory body.
FCA policy presumes that inexperienced traders do not have the necessary information that allows them to safely engage in the trade of risky financial products, cryptocurrencies being one of these. Assets that come with possible market manipulation, difficulty in assessing value and that have high trading fees fall under the list of products that the FCA is concerned about.
The regulator also says that this asset class is driven by hype rather than real-world usage and technological advances and this is a cause for concern.
Blanket Ban on Crypto Derivatives Would Not Help
The blanket ban on crypto derivatives could have various possible effects on the industry in the UK.
Jacqui Hatfield, an industry insider and fintech legal expert said that the blanket ban would be a knee jerk reaction and it will probably push investors to put their funds in the digital assets themselves instead of products such as crypto derivatives. Hatfield added that an exchange could move their business overseas and the FCA’s ban would be of no use.
🚨 @TheFCA is planning to ban access to cryptoasset investment products.
The regulator’s evidence base for such a ban demonstrates a worrying lack of understanding.
Act now to help us stop these concerning proposals: https://t.co/B9yPI3QZDc
— CoinShares 👩🚀 (@CoinSharesCo) September 19, 2019
The final decision is due in 2020 and concerned parties could still get into contact with the FCA about the proposed blanket ban. Many companies have expressed dissatisfaction with the FCA’s stance on crypto assets and there is a belief that the regulator’s moves could stifle industry growth.
A final note to consider is the impact that this type of ban by the UK might have on the global cryptocurrency space as well.