Britain’s FCA Considers Ban on Crypto Derivatives; Too Risky for Small Investors

The Financial Condict Authority considers investments based on digital assets as too volatile and risky for small-scale investors.

Crypto-based derivatives are too risky for small-scale investors and should be banned, believes Britain’s regulatory body, the Financial Conduct Authority (FCA). A potential ban may be put in place to protect small investors, reported The Guardian.

“Most consumers cannot reliably value derivatives based on unregulated crypto-assets. Prices are extremely volatile and as we have seen globally, financial crime in crypto-asset markets can lead to sudden and unexpected losses,” said Christopher Woolard, the executive director of strategy and competition at the FCA.

Derivatives based on digital assets may include options, futures, contracts for differences (CFD), as well as exchange-traded notes.

The hawkish stance of Britain’s FCA contrasts the current rules within the EU, where crypto-derivative products are already traded, based on some of the most liquid digital coins. The EU also allows for brokerages to buy, sell and trade digital coins. But ahead of Brexit, Britain’s financial sector may make a new approach. The FCA claims to be able to save small-scale investors from losses ranging from 75 million GBP to as much as 243 million GBP.

The price setting for digital assets is an unregulated process. While Bitcoin (BTC) has shown there are a handful of markets capable of discovering a dollar-denominated price, for some altcoins, trading is much more obscure, and distributed over a large expanse of globally placed, unregulated exchanges.

BTC prices have also shown unprecedented volatility, potentially discouraging regulators from granting permission to launch BTC-based exchange-traded funds (ETF), or some forms of futures markets.

Following the news of the proposed ban, Nouriel Roubini, renowned for his highly critical stance on crypto assets, greeted the move.

Roubini pointed out that digital asset trading was becoming even risker, with the recent addition of 100X leverage. Roubini also recently debated Arthur Hayes, CEO of BitMex, criticizing the high-leverage model for adding even more risk to the BTC markets.

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