The United Kingdom FCA, Financial Conduct Authority (FCA), body in charge of supervising and regulating the nation’s financial system has released a ban on the trading of Crypto derivatives and ETNs (Exchange Traded Notes) to retailers.
Although this may seem insignificant to the general Crypto Securities Market as the UK Crypto market is relatively small, this interesting move is worthy of analysing.
The FCA’s policy statement started with words along the lines of “…there is growing evidence that crypto assets are causing harm to consumers and markets.”
It appears that the FCA has a negative bias as to the essence of Crypto derivatives hence the statement that these asset classes are causing harm to markets. Little wonder that the developers of blockchain, the technology that runs crypto assets, invented blockchain with the mind of not having the nascent technology regulated.
The FCA disclosed how they believe that retail investors cannot comprehend novel topics and ideas and to this end they should not dabble in asset classes they have no inherent understanding of. The regulator even hinted that they were circumventing losses of about £19 million and £101 million a year. This way, they attempted to show off their credibility and expertise in dealing with assets.
On less lighter note, the FCA gave the following reasons for their banning of Crypto derivatives:
Unascertainable Basis for Valuation
The FCA highlighted how fickle the Crypto asset class is saying that the “inherent nature of the underlying assets (is unascertainable), which means they have no reliable basis for valuation.”
Some Crypto experts are of the view that nothing is really surely for sure in the financial market. Again, the way the crypto asset is curated, it does not respond to traditional valuation systems. This however does not mean that the crypto market has no value drivers as such. They urged the FCA and other persons interested to do more research.
Financial and Economic Crimes
In banning the Crypto Derivatives, the FCA highlighted the “prevalence of market abuse and financial crime in the secondary market (e.g. cyber theft).”
Based on the fact that nearing the end of September, leaked FinCEN files revealed that the U.S. Treasury designated the U.K. as a “higher risk jurisdiction,” due to the increase in the number of financial crimes- the FCA pushed for the banning of the Crypto Derivative Market.
Crypto Assets Are Volatile
Another rationale behind this move is the “extreme volatility in crypto asset price movements”
In response, one angered crypto proponent explained how “you don’t see U.K. retail investors being banned from buying or selling Tesla derivatives.” which are also quite volatile.
It is not understandable how the FCA came about the conclusion that a lot of Crypto investors do not understand the market when the experts at FCA Consumer Survey results disclosed that “the majority of crypto asset owners are generally knowledgeable about the product, and are aware of the lack of regulatory protection afforded and understand the risk of price volatility.”
To this end, many are of the view that this move is merely one to diminish interest in the novel asset class. The ban also affects ETNs- Exchange Traded Notes (ETNs) which are relatively less riskier than derivatives. The regulator remained adamant in their opinion that ETNs are still relatively unreliable even though they are sold with informative prospectuses.
The policy also bans high net worth individuals and self certified investors.
Many have risen to lash at this move.
What do you think about this policy?
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