UK’s FCA considering outright ban on cryptocurrency CFDs

  • By Tom Cleveland

  • November 15, 2018
  • 1:39 am BST

A recently released report by a multi-agency UK task force has cast doubt upon the future regulation of crypto assets in the region. The FCA appears to be the regulator of choice for these assets, but it has come out with threats that it is considering an outright ban on “retail derivatives of cryptocurrencies, including CFDs, futures and options, as part of the UK authorities’ sweeping push to regulate the virtual asset class.”

The task force, comprised of staff from the Treasury, the Bank of England and the Financial Conduct Authority (FCA), was formed in March. Its mission was to assess “the benefits and risks of blockchain business and how London can retain its position as one of the world’s leading centers for the Fintech industry.” As in other developed markets, current financial legislation is behind the curve when it attempts to define and regulate how virtual assets fall within existing parameters of the law. This task force is just one example of how these issues are being addressed.

On the one hand, we are witnessing a revolution and evolution of a new asset class, but regulators, unfortunately, are the recipients of a multitude of consumer complaints related to significant loss rates, sub-standard business practices, and, in some instances, blatant fraud. Crypto assets are high risk, yet the investing public is not taking the proper precautions to become aware of the risks at hand and deal appropriately with them in this environment. As a result, regulators feel it necessary to protect the public at large, if only to reduce the level of consumer complaints.

Within the report, the FCA cited “concerns identified around consumer protection and market integrity”, as its justification for potentially banning cryptocurrency CFDs, for example, at least those crypto assets that were deemed to be “securities” under the law. The report went on to say that, “The risk of trading losses can be exacerbated by product fees such as financing costs and spreads, as well as by a lack of transparency in the price formation of the underlying crypto asset.” It also noted that it would not change anything within the recently enacted ESMA restrictions related to CFDs. These new restrictions would still apply, as published.

The report is an initial assessment. Final rules have yet to be drafted, but until that time, the FCA will continue to police the crypto area for fraudulent activity. If bans are to be instituted, it would just one more blow to large entities that compete in this space, i.e., The IG Group, Plus500, and CMC Markets, three London powerhouses that are publicly traded on the London Stock Exchange. Each company has reported the potential for material revenue declines due to the new ESMA rules. Additional bans might only compound the current situation.

When asked for comment, Iqbal V. Gandham, the present chair of CryptoUK, remarked: “We are pleased that today’s report announces a Treasury consultation on bringing cryptoassets within the regulatory perimeter of the FCA. We have consistently argued that this is the simplest and most effective way to introduce regulation. In taking forward these plans, it is important that new rules are proportionate and do not put up excessive barriers, including for retail investors. It is also encouraging that the government has undertaken to continue monitoring developments in our fast-evolving market to ensure the regulatory environment is fit for purpose, as well as supporting the adoption of blockchain technology more broadly.”