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Protecting crypto consumers from themselves?

The Financial Conduct Authority (FCA) has proposed a ban on financial instruments linked to cryptocurrencies, warning that such products could cause huge losses for consumers unlikely to understand their risks or value.

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Published 4 July 2019

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The Financial Conduct Authority (FCA) has proposed a ban on financial instruments linked to cryptocurrencies, warning that such products could cause huge losses for consumers unlikely to understand their risks or value.

The FCA said products such as derivatives and exchange-traded notes (ETNs) that reference crypto-assets were “ill-suited” to small investors.

Whilst trading in regular currencies and commodities falls outside the purview of regulation, derivatives of currencies or commodities are MiFID products and are therefore regulated.  Although regulations do not yet specifically reference crypto-currencies, the FCA has indicated in its consultation paper, CP 19/3, that they think that crypto derivatives should fall under regulation even if this is not the case for the underlying cryptocurrency. Derivatives on any financial instrument are leveraged and therefore risky (unless used for hedging) but, when the underlying is itself as volatile as Bitcoin or Ethereum, you can understand why the regulator wants to “protect” consumers from themselves. An alternative would be a risk warning and consent form.

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Shorter Reads

Protecting crypto consumers from themselves?

The Financial Conduct Authority (FCA) has proposed a ban on financial instruments linked to cryptocurrencies, warning that such products could cause huge losses for consumers unlikely to understand their risks or value.

Published 4 July 2019

Associated sectors / services

Authors

The Financial Conduct Authority (FCA) has proposed a ban on financial instruments linked to cryptocurrencies, warning that such products could cause huge losses for consumers unlikely to understand their risks or value.

The FCA said products such as derivatives and exchange-traded notes (ETNs) that reference crypto-assets were “ill-suited” to small investors.

Whilst trading in regular currencies and commodities falls outside the purview of regulation, derivatives of currencies or commodities are MiFID products and are therefore regulated.  Although regulations do not yet specifically reference crypto-currencies, the FCA has indicated in its consultation paper, CP 19/3, that they think that crypto derivatives should fall under regulation even if this is not the case for the underlying cryptocurrency. Derivatives on any financial instrument are leveraged and therefore risky (unless used for hedging) but, when the underlying is itself as volatile as Bitcoin or Ethereum, you can understand why the regulator wants to “protect” consumers from themselves. An alternative would be a risk warning and consent form.

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