Regulatory Series on Cryptocurrencies: UK Regulatory Authorities Intends For Banning Crypto-Derivative Products

Evers since the idea of cryptocurrency derivatives have been the center of attraction from the recent past, the global regulatory authorities, such as US SEC, CFTC and UK’s Financial Conduct Authority (FCA) have been meticulously scanning the entire crypto-space. 

As per the sources of FCA, back in March 2018, the UK government enforced the Crypto-Assets Task-Force (CATF), consisting of HM Treasury, the Financial Conduct Authority (FCA) and the Bank of England, who issued a report in October 2018 that led to further investigation and consideration of banning the sale of products pertaining cryptocurrencies to retail consumers to prevent “harm from potentially sudden and unexpected losses”.

According to the report, “As the CATF Report found, we consider that retail consumers cannot reliably assess the value and risks of derivatives and exchange-traded products that reference certain crypto-assets.

This is due to the:

• Nature of the underlying assets, which have no inherent value and so differ from other assets that have physical uses, promise future cash flows or are legally accepted as money.
• Presence of market abuse and financial crime (including cyber-thefts from crypto-asset platforms) in the secondary market for crypto-assets.
• extreme volatility in crypto-asset prices.
• Inadequate understanding by retail consumers of crypto-assets and the lack of a clear investment need for investment products referencing them.”

The FCA emphasizes, derivatives instruments of cryptocurrencies (such as bitcoin futures (both cash-settled & physically deliverables, cryptocurrency CFDs, and cryptocurrency options) are capable of being financial instruments under the Markets in Financial Instruments Directive II (MiFID II) and therefore within scope of regulation as the regulatory framework of cryptocurrencies in the UK is yet to be decisively designed. The FCA explicitly clarifies that it does not consider cryptocurrencies to be categorized as either currencies or commodities under MiFID II. 

Hence, the FCA urges that the cryptocurrency derivatives must comply with all relevant EU and UK regulations.

In response to the UK regulators over potential ban of various crypto products, crypto-firms like ‘CoinShares’ is confronting back. The London-based digital asset management firm has used their twitter handle to proclaim that FCA lacks understanding about crypto-sphere.