UK Regulators Warn Investors Against Crypto Derivatives… again

After a comprehensive study of the crypto space, UK Cryptoassets Taskforce has released its conclusions and painted the regulatory prospects for the national crypto industry.

Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority (FCA), has presented the latest conclusions of the large-scale study launched by the British authorities to explore digital assets and the blockchain technology.

In his speech given at The Regulation of Cryptocurrencies event that took place in London this week, Woolard delivered the study’s findings and described the prospects of crypto assets regulation in the UK, including a possible ban on some crypto-based derivatives.

To better understand distributed ledger technology (DLT) and cryptocurrencies, many governments have created special taskforces assigned to find out the potential threats and benefits of digital assets in financial services as well as ways of their proper regulation.

In the UK, the Cryptoassets Taskforce was formed in March by representatives of the FCA, HM Treasury and the Bank of England. At the end of October the Taskforce published its final report, and now Woolard is reaching out to share the authorities’ conclusions and views on the national crypto industry. As an important step to future regulation, the Taskforce has categorized crypto assets and defined key industry terms. It also recognized a number of advantages offered by blockchain-based financial innovations, such as higher speed, lower costs and easier cross-border transactions.

Regarding risks to consumers, he explained that inexperienced customers might face dishonest service providers and suffer huge financial losses, and confirmed that the watchdog is considering a ban on some crypto-based derivatives. The Taskforce first came up with this recommendation last month.

“We’re concerned that retail consumers are being sold complex, volatile and often leveraged derivatives products based on exchange tokens... Given this, the FCA will also consult on a prohibition of the sale to retail consumers of derivatives referencing certain types of cryptoassets (for example, exchange tokens), including contracts-for-difference, options, futures and transferable securities,” Woolard warned.

Commenting on the issue of using crypto assets for illicit activity, he announced a very ambitious response from the British regulators.  Woolard said they would do even more than standard EU laws require, and consider broadening the scope of regulations on anti-money laundering and counter-terrorism financing.

Woolard added that the authorities also plan to assess the current boundaries of crypto assets’ regulation. The FCA intends to have consultations by the end of this year in order to determine which digital assets fall within its “regulatory perimeter”. After that, the Treasury will be involved in further discussions in order to decide whether this perimeter needs to be extended to other crypto assets.

Also, the Treasury announced another round of consultations coming early next year aimed at new risks related to exchange tokens, exchanges and even wallets. The authorities will consider a new regulatory framework that would be able to effectively address such risks.

“However, we also recognise the limits of domestic action on this global, cross-border issue. We will, therefore, also seek to work collaboratively with international counterparts,” Woolard emphasized.

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