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New rules banning the sale of crypto derivatives

Oct 6, 2020 12:00:00 AM

What has happened?

The FCA has published, in its Policy Statement PS 20/10, final rules banning the sale to retail consumers of derivatives and exchange-traded notes that reference unregulated transferable cryptoassets. The FCA considers these products to be unsuitable for retail consumers, specifically because they cannot be reliably valued by them because of 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,
    • extreme volatility in cryptoasset price movements,
    • inadequate understanding of cryptoassets by retail consumers, and
    • lack of a legitimate investment need for retail consumers to invest in these products

These features mean that retail consumers might suffer harm from sudden and unexpected losses if they invest in these products.

What do you need to do?

The FCA has now made rules banning the sale, marketing and distribution to all retail consumers by firms acting in or from the UK of any derivatives (that is, contracts for difference, options and futures) and exchange-traded notes that reference unregulated transferable cryptoassets. The ban will come into effect on 6 January 2021, so firms that carry out these activities will need to comply with these rules by that date.

Retail consumers with existing holdings can remain invested following the prohibition until they choose to disinvest. There is no time limit on this, and the FCA does not require or expect firms to close out retail consumers’ positions unless consumers ask for this.

The FCA explains in the Policy Statement that its supervision in this area will focus on attempts to avoid the effect of these rules by inappropriately opting up retail clients to become elective professional clients, or by moving retail consumers to associated non-UK entities, and on the conduct of inward passporting firms operating under the Temporary Permissions Regime.

How can we help you?

If you’d like to know more about how we can help you with your marketing of crypto derivatives or with any other aspect of FCA compliance, our expert team is here to help. Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.