The FCA closes the door on Crypto derivatives for retail clients

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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 trading 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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