The move could help prevent retail investors losing up to £234m a year.
The FCA is planning rules to address “harm” to retail consumers from the sale of derivatives and exchange traded notes (ETNs) connected to certain types of crypto-assets.
The FCA says it considers these products are “ill-suited” to retail consumers who cannot reliably assess the value and risks of derivatives or ETNs that reference certain crypto-assets (crypto-derivatives).
This is due to:
- the inherent nature of the underlying assets, which have no reliable basis for valuation
- the prevalence of market abuse and financial crime in the secondary market for cryptoassets (eg cyber theft)
- extreme volatility in cryptoasset price movements, and
- inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them
These features mean retail consumers might suffer harm from sudden and unexpected losses, says the watchdog.
The FCA has also issued consumer warnings about the risks associated with direct and indirect investments in cryptoassets.
The FCA is consulting on banning the sale, marketing and distribution to all retail consumers of all derivatives (that is contract for difference - CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.
The regulator says it estimates the potential benefit to retail consumers from banning these products to be £75m to £234.3m a year.
Christopher Woolard, executive director of Strategy & Competition at the FCA, said: “As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.
“Most consumers cannot reliably value derivatives based on unregulated crypto-assets.”
This consultation follows Policy Statement (PS19/18) published on 1 July 2019, which finalised rules restricting the sale of CFDs and CFD-like options to retail clients.