Financial Conduct Authority  

FCA bans crypto derivatives to save investors £53m a year

FCA bans crypto derivatives to save investors £53m a year

The Financial Conduct Authority has estimated its ban restricting the sale of crypto-derivatives is set to save retail investors £53m a year. 

It comes as the regulator today (October 6) finalised its rules banning the sale of derivatives and exchange traded notes which reference certain types of cryptoassets to retail consumers.

A derivative is an asset that derives its value from the value of another asset, therefore derivative products have no asset value on their own.

The best known cryptoasset is cryptocurrency bitcoin, so an investor in a bitcoin derivative would make money if the value of bitcoin rises, but they never actually own the currency. 

When it first proposed the ban in July last year the regulator suggested the potential benefit to retail consumers would be in the range of £75m to £234.3m a year.

Today it said it would be £53m annually.

The rules will come into force from January 6, with the FCA today renewing its warning that these type of products were ill-suited to retail investors.

In particular the City watchdog said consumers might suffer harm from "sudden and unexpected losses" if invested in crypto-derivatives.

Sheldon Mills, interim executive director of strategy and competition at the FCA, said the ban "reflected how seriously" the regulator viewed the potential harm to retail consumers. 

He said: "Consumer protection is paramount here.

"Significant price volatility, combined with the inherent difficulties of valuing cryptoassets 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."

Source: The FCA

rachel.mortimer@ft.com 

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.