UK Financial Watchdog May Ban Crypto CFDs for Retail Customers

The Financial Conduct Authority is reacting to the recent bear market by looking to ban retail CFDs on cryptos next year.

An announcement published by the UK Financial Conduct Authority proposes changes to the model with which contracts for difference (CFDs) are currently sold to retail customers, including a requirement for firms to limit the leverage on contracts and eliminate monetary and non-monetary incentives with the intention of encouraging trading.

However, with regards to cryptocurrencies, the FCA wants an outright ban on retail-oriented CFDs, citing the UK Cryptoasset Taskforce’s reports for 2018.

“The FCA will consult separately in early 2019 on a potential ban on the sale of derivative products referencing cryptocurrencies, including CFDs, to retail customers,” the organization said in its announcement.

The UK Cryptoasset Taskforce reported on its analysis of the cryptocurrency market towards the end of last month, and warned investors about cryptocurrency derivatives.

“Although regulated, financial instruments that reference cryptoassets also produce some specific risks to consumers. Leveraged derivatives, such as CFDs and futures, can cause losses that go beyond the initial investment. 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 cryptoasset,” the taskforce wrote.

In its conclusion, it supported a “potential prohibition” of retail-oriented derivatives that included “CFDs, options, futures and transferable securities.”

A few months ago, the FCA took measures to restrict cryptocurrency CFDs sold to retailers, limiting leverage to 2:1 to compensate for the high volatility in these markets. This was the status quo until the beginning of last month, after which the organization announced its proposal to prohibit the product from being sold entirely.

The expediency of this proposal may have been provoked by the current bear market, which saw Bitcoin shedding much of its value in the last few weeks. Anyone who invested in a CFD hoping to make a profit may have experienced heavy losses.

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