The FCA proposes to ban crypto-derivative sales to retail clients

Still, retail clients would be authorised to obtain affected products proactively from non-EEA sources. The proposed ban would also prevent UK brokers from selling to UK retail clients affected products that might be traded abroad lawfully.

The proposed ban would include derivatives and ETNs based on cryptocurrencies and so-called “utility tokens” to the extent they are created on public blockchains and are readily transferable; the decision would not include derivatives or ETNs referencing security tokens; digital tokens that are unregulated but not widely transferrable (e.g., tokens used on a private blockchain); or tokens that constitute e-money and are subject to the FCA’s Electronic Money regulations (e.g., potentially stablecoins).

Futures, options and contracts for differences are types of derivatives that would be included in the proposed ban. The ban would also not extend to professional clients or eligible counterparties as defined under the FCA’s client categorisation rules.

According to Lexology, the FCA claimed that it was proposing its ban because of (1) the complexity of the affected cryptoassets and “the lack of transparency around their valuation”; (2) “the prevalence of market abuse and financial crime in the secondary market for cryptoassets (e.g. cyber theft)”; (3) retail customers’ apparent “lack of knowledge and understanding” regarding affected cryptoassets; and (4) particular characteristics of the relevant derivatives and ETNs, including leverage “and volatility of the underlying assets.”

The FCA will accept comments on its proposal through October 3, 2019.