Crypto Clampdown: FCA consults on proposed ban of cryptocurrency products

July 11, 2019

2 min read

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What's going on here?

The Financial Conduct Authority (FCA) has opened a consultation on a proposed ban of cryptocurrency products.

What does this mean?

The ban would not affect the underlying cryptocurrencies (e.g. Bitcoin, Ethereum etc.). The ban instead focuses on products such as contracts for difference (CFDs) (betting on whether the price of something will rise or fall) and futures (agreeing to purchase an asset in the future at a locked-in price).

The proposed ban represents a hardening of approach in the UK towards cryptoassets. At present there are no specific UK laws relating to cryptocurrencies. The FCA is duty-bound to secure an appropriate degree of protection for consumers for the products available on its markets. The FCA deems cryptocurrency products to be unsuitable investments for retail consumers. The reasons given for this are their extreme price volatility, which can lead to sudden and unexpected losses for consumers, and the lack of understanding on the part of investors as to what they are buying.

What's the big picture effect?

The FCA estimates that banning cryptocurrency products could save UK consumers up to £235 million. Some of these products, however, are already in circulation and would need to be closed if the ban became effective. It is notable that the proposed ban impacts on cryptocurrency products only. This is despite the fact that the currencies the products are based on suffer from the same ambiguity and volatility.

The UK is acting alone in considering this ban, and this raises the question as to whether cryptocurrencies and their derivatives should be regulated at the national or international level. The EU has legislated to implement a licensing scheme for those companies who run cryptocurrency exchanges under the 5th Anti-Money Laundering Directive 2018. This legislation targeted illegitimate activities such as money laundering, terrorist financing and tax evasion that have unfortunately become closely associated with cryptocurrencies. The European Parliament estimates that over €7 billion is lost to these activities worldwide every year. Of course, cryptocurrencies are not confined by national borders, so it follows that supra-national regulation may be the best legislative weapon in the arsenal.

It will be interesting to see if the FCA’s hardline approach remains when the final policy statement and Handbook rules are updated in early 2020.

Report written by Sam Denison

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