UK Financial Watchdog Eyes Ban on Sale of Crypto Derivatives

The Financial Conduct Authority (FCA) is eyeing a potential ban on the sale of cryptocurrency derivatives, the Financial Times reported.

The UK financial watchdog said that it would begin discussions in the first quarter of the next year on whether it would go ahead with the proposed ban on crypto-based difference, futures, and options. The agency affirmed that it still believes cryptocurrencies have no intrinsic value and investors should be prepared to lose a lot of money if they venture into this unregulated territory. It also repeated global concerns about the amount of manipulation and frauds that could take place in the crypto market, adding that it could give criminals a ready-made platform for laundering money.

“A combination of market immaturity, illiquidity and a lack of available information regarding the market give rise to concerns about market integrity,” the FCA reasoned. “This may damage confidence and prevent both the cryptoasset market and related derivative markets from operating effectively.”

“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 regulator mentioned at at a time when successful financial firms in the UK, including Plus500 and IG Group, are showing higher revenues from crypto-derivate trading.

Financial Stability under Threat

The FCA published its statements alongside a report prepared by the Cryptoasset Taskforce, a team comprising of representatives from the FCA, the Bank of England, and the UK Treasury. The long-awaited report made to the wire six-months after its announcement in April this year, and now stands published with its opinion on the crypto regulations in general.

The report mentioned cryptocurrencies like Bitcoin as a “threat to financial stability,” stating the crypto-derivatives are even riskier than the real assets, for they could cause investor losses that go beyond the original investment itself.

In March 2018, the UK Financial Policy Committee (FPC) had found that crypto assets had no impact on the global financial stability due to its limited use.

“The FPC’s analysis focused on the ‘transmission channels’ which could transmit risks from the cryptoasset market into the formal financial system,” the report clarified. “The FPC determined that, in the case of current crypto assets, these transmission channels were not significant at this point in time but that, in certain circumstances, they could become more significant over time and therefore produce risks to financial stability.”

Cryptocurrency Regulation in the UK

The FCA has specified that its constitutional authority is only applicable to financial instruments. That allows the regulator to oversee those crypto-assets that have “comparable features to specified investments”. For others kind of crypto assets, it might need to extend its regulatory oversight.

In the same line, the FCA said it would begin the framework for regulating cryptocurrencies like Bitcoin, as well as trading and wallet companies in the space, next year.

“Given the complexity and new challenges presented to traditional forms of financial regulation, more time is needed to consider how regulation can meaningfully address the risks posed by exchange tokens, such as bitcoin,” the UK regulator said.

 

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