FCA Eyes Outright Ban on Cryptocurrency CFDs, Report Says

The City watchdog is considering a ban on retail derivatives of cryptocurrencies, including CFDs, futures and options, as part of the UK authorities’ sweeping push to regulate the virtual asset class.

The proposed prohibition was suggested by the recently-established UK government’s crypto assets taskforce which today released its first report. Overall, the report explores the impact, the potential benefits and challenges of cryptoassets, and assesses what regulations are required in response.

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The creation of such taskforce was announced in March, comprising staff from the Treasury, the Bank of England and the Financial Conduct Authority (FCA). It was tasked with assessing the benefits and risks of blockchain business and how London can retain its position as one of the world’s leading centres for the Fintech industry.

Citing the “concerns identified around consumer protection and market integrity”, the report said a complete ban on sale of crypto-CFDs to retail investors was under consideration of the FCA. In a consultation with relevant stakeholders, the regulators touted the possibility of excluding derivatives referencing “cryptoassets that qualify as securities.” But in all cases, CFDs on cryptos would remain subject to ESMA’s restrictions on cryptocurrency CFDs, including lowering the maximum leverage that companies can offer.

Another blow for CFDs brokers

The plans, which will be updated by early 2019, came amid concern that the products can cause losses for amateur customers that go beyond the initial investment, yet are marketed aggressively by some providers.

“The risk of trading losses can be exacerbated by product fees such as financing costs and spreads, as well as by a lack of transparency in the price formation of the underlying cryptoasset,” the report further states.

As part of its findings, the taskforce says that until the final rules are in place, the FCA will continue to go after illegal cryptocurrency brokers. In November 2017, FCA issued a warning for investors in cryptocurrency contracts for difference (CFD), mentioning the risks involved. However, the watchdog decided in late December not to regulate the digital asset class, though it stated the decision is not indicative of the approval of investments in the cryptocurrency.

If confirmed, the action from UK regulators on crypto-CFDs, in particular, could cause further damage to large players such IG Group and Plus500, which already signalled during the latest earnings calls that their solid earnings over the past months won’t be repeated after ESMA’s new rules. The sluggish forecasts came after CFDs providers have enjoyed huge demand for their crypto products in the first half of 2018.