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FCA suggests ban on crypto derivatives

The UK's financial services watchdog is proposing a ban on cryptocurrency derivatives for retail investors in order to prevent them incurring large losses in financial instruments they do not understand.

The Financial Conduct Authority (FCA) has focused on derivatives linked to crypto-assets, citing their extreme volatility, difficulty in valuation and the limited understanding of these products among retail consumers.

The regulator's fear is that retail investors may suffer harm from sudden and unexpected losses if they invest in these products. Most consumers cannot reliably value derivatives based on unregulated crypto-assets, Prices are extremely volatile and globally, financial crime in crypto-asset markets can lead to sudden and unexpected losses. Derivatives and exchange-traded notes are unsuitable investments for retail consumers.

The FCA estimates that a ban would save consumers between £75 million and £234 million per year by preventing fraud and unexpected losses. FCA will act when we poor products being sold to retail consumers.

Should the proposition come to fruition it could mean a ban on any exchange-traded notes, futures and options and contracts for difference linked to crypto-assets.

The FCA's comments come at a time when regulators around the world have focused on crypto-assets in the wake of Facebook's announcement around its Libra cryptocurrency project. The volatility of cryptocurrency values has also been highlighted in recent weeks with Bitcoin's value reaching a high of £13,000 in recent weeks before dropping to £11,000.

Some in the crypto assets world have criticised the idea of prohibiting retail consumers from investing in certain crypto products and instead favour regulation of the sector. The most effective way to protect retail investors is  to take decisive action against opaque, unregulated cryptocurrency derivative platforms that have been operating unhindered for years out of Europe and offshore.

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