After a long wait, the Financial Conduct Authority (FCA) has finally ruled against the sale of cryptocurrency futures and ETN exchange-traded notes.
The UK's Financial Conduct Authority (FCA) issued a release recent where it imposes a series of prohibitions that prevent negotiations with products derived from cryptocurrencies, , such as options and futures and exchange-traded notes (ETNs). According to the FCA, these derivative products represent a significant risk for investors and consumers, which is why the regulator's final decision was to ban them.
The FCA statement reads that the authority considers these products to be unsuitable “for retail consumers due to the harm they represent,” while pointing out a list of attributes that make these products impossible to value in a reliable way. Among these attributes, the authority highlights the inherent nature of the underlying assets, which in its opinion means that they do not have a reliable basis for valuation; as well as the volatility that many of these crypto assets present in their price and the lack of understanding that many retail consumers still have about these products, who often end up investing their money without really knowing how a product works or if it is really profitable.
The FCA also noted that there are currently several cases of financial crimes within the secondary cryptocurrency market, so it is risky to invest in products that do not guarantee absolute security.
It may interest you: Cryptocurrency defender in Venezuela proposes that the National Mining Pool coexist with the private sector
A saving of £53 million
The Financial Conduct Authority (FCA) is the UK regulator responsible for overseeing firms and companies that provide financial services on a small and large scale. Therefore, when its new regulation comes into force on January 6, 2021, companies that carry out any regulated activity related to this type of investment must be previously authorized by the FCA, otherwise they would be breaking the law.
The authority notes that with the new provisions banning the trading and negotiation of cryptocurrency derivatives in the UK, retail consumers will be able to save around 53 million pounds sterling, equivalent to 68,2 million dollars.
“The FCA estimates that retail consumers will save around £53m by banning these products.”
Sheldon Mills, Acting Executive Director for Strategy and Competition at the FCA, said the FCA's new bans reflect the seriousness with which it takes the potential harm to retail consumers of these products and the FCA's overriding need to protect and ensure the safety and security of these consumers.
“Consumer protection is paramount here… The ban provides an adequate level of protection.”
Mills argues that one of the compelling reasons for the FCA's decision is the extreme volatility in crypto asset prices, noting that they have evidence that this is currently occurring on a significant scale. However, in the case of BitcoinThe cryptocurrency market is showing clear signs of maturity, as it is maintaining a 23-month low volatility, indicating that its price is increasingly stable since November 2018.
Reaction from CoinShares and other crypto companies
Several companies in the crypto ecosystem were quick to react to the publication of the FCA's decisions. As in the case of coinshares, a digital asset management company that prepared an entire campaign to convince the regulator to approve the trading of derivatives, options and futures of cryptocurrencies and ETNs. Regarding this last product, Townsend Lansing, CoinShares' head of product, noted in an interview that he was disappointed by the FCA's decision as its ETNs are not fully leveraged, so they track underlying prices one-to-one.
Lansing said that CoinShares and other companies in the ecosystem gave the FCA strong arguments for allowing trading in these types of products, but that it unfortunately rejected them “with little additional information.” The CoinShares executive also argued that the FCA’s decision could lead retail investors and consumers into the hands of unregulated exchanges, which could harm them.
Finally, the FCA statement warns retail investors that when the new regulation comes into force, companies that provide such services within the United Kingdom without being regulated by the authority are likely to be scams.
Continue reading: The Chamber of Digital Commerce wants to educate congressmen about the benefits of blockchain technology
