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Protecting Consumers: Crypto Derivatives Ban in UK, CFTC Enforcement Record

In its sweeping final ruling, the UK’s Financial Conduct Authority (FCA) has decided to ban the sale of cryptocurrency-related derivatives and exchange traded notes to retail customers. According to information from the regulator, these products are “ill-suited” for sale to retail customers since they cannot be “reliably valued” by these customers.

Sheldon Mills, interim executive director of strategy and competition at the FCA said the ban is evidence of how harmful the agency believes these transactions can be to retail traders and emphasized the importance of consumer protection when drafting the rule. As a result of the new rules, the FCA estimates retail consumers will be able to save approximately £53M from the ban of these transactions.

“Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives,” she said in a statement. “We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”

According to information from the FCA, some of the reasons for the new rule include the:

  • “Inherent nature of the underlying assets, which means they have no reliable basis for valuation”
  • “Prevalence of market abuse and financial crime in the secondary market (eg cyber theft)”
  • “Extreme volatility in cryptoasset price movements”
  • “Inadequate understanding of cryptoassets by retail consumers”
  • “Lack of legitimate investment need for retail consumers to invest in these products”

The FCA states unregulated transferable “cryptoassets” are digital tokens that are not considered “specified investments” or e-money, and are capable of being traded. This designation includes notable tokens like Bitcoin, Ripple and Ether. Per their assessment, “specified” tokens are those that are enumerated as such via legislation.

FROM TWITTER

Altus Ltd @AltusLtd Oct 1

"Very interesting to hear from @Politicana/@StepChange 's view of #vulnerability and what #finserv companies can do to protect the best interest of their customers. #AltusVCWS #vulnerablecustomers #regulation #vulnerabilityradar #financialconductauthority #financialservices"

EjP9T WXcAEQpz0The ban, which includes the marketing, sale and distribution of derivatives like options and futures as well as exchange traded notes referencing certain cryptoassets, will take effect Wednesday, Jan. 6, 2021.

Protecting Consumers on Both Sides of the Pond

In the U.S., the Commodity Futures Trading Commission (CFTC) announced record-breaking enforcement for the fiscal year finishing Wednesday, Sept. 30, 2020.

According to the CFTC, it filed 113 actions, which is more than any other year since its inception. Further, it secured $920 million in restitution for manipulation and spoofing victims and coordinated with state authorities to address elderly victims in a record-setting 30 instances. It also reported aggressive pursuit of fraudulent activities related to the COVID-19 pandemic.

“We are tough on those who break the rules, and this historic year only further underscores this point,” said CFTC Chairman Heath P. Tarbert in a statement. “The case statistics alone are impressive, but the fact that the enforcement program was this successful even during a pandemic is even more remarkable. I applaud the Division of Enforcement staff for their incredible work, professionalism, and commitment to carrying out the Commission’s mission with integrity and purpose.”

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