The FCA closes the door on Crypto derivatives for retail clients

The FCA closes the door on Crypto derivatives for retail clients

FCA to Ban Cryptocurrency CFDs from 6th January 2021

The FCA has banned cryptocurrency CFDs to retail traders and flexed its post Brexit muscles today and for the first time since the UK left the European Union, it has moved in a different direction to the European regulator ESMA.

In a surprise announcement today see here the UK regulator has moved to ban the promotion and marketing of, or sale to retail clients, of derivatives based on cryptocurrencies.

The ban not only includes OTC derivatives such as CFDs, or Contracts for Difference, and Spread betting, but it also extends to exchange-traded products including ETNs, Futures and Options.

Readers will recall that ESMA had previously restricted the leverage available to retail margin traders on cryptocurrencies capping that a maximum of 2:1.

But the FCA clearly believes that those restrictions did not go far enough.

In its statement, the UK regulator cited a lack of legitimate investment need for retail consumers to invest in these products and an inadequate understanding of crypto assets by retail consumers.

Also and rather oddly in our view, the FCA also flagged the prevalence of market abuse and financial crime in the secondary market (eg cyber theft). Something that CFDs on cryptocurrencies allowed retail clients to avoid, as the contracts confer no ownership of the underlying but instead provided an economic interest in price changes of those instruments.

The share prices of quoted margin trading companies dipped on the announcement though cryptocurrency trading had provided a useful additional stream of revenue for the likes of IG and CMC Markets Equity Index and Forex trading still account for the lions share of revenues in the. sector.

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Trading Risk Warning

ALL INVESTING INVOLVES RISK. Investing, Derivatives, Spread betting and CFD trading carry a high level of risk to your capital and can result in losses that exceed your initial deposit. They may not be suitable for everyone, so please ensure that you fully understand the risks involved.
ESMA & FCA Risk Warning – “CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 68-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Capital at risk”