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Crypto-Derivatives Banned?

AUTHORs: Christian Donagh Services: Finance and Capital Markets DATE: 18/07/2019

The UK Financial Conduct Authority (“FCA”) is consulting on banning the sale, marketing and distribution to all retail consumers, by firms acting in or from the UK, of derivatives and exchange traded notes referencing unregulated transferable cryptoassets, such as virtual currencies like Bitcoin.

This consultation fulfils the FCA’s commitment in the UK Cryptoasset Taskforce Final Report of October 2018 to explore a potential ban.

In its consultation paper CP19/22 of 3 July 2019 the FCA states that it considers these products ill-suited to retail consumers who cannot reliably assess their value and risks. This conclusion is stated to arise from (i) the nature of the underlying assets which, according to the consultation paper, have no reliable basis for valuation; (ii) concerns regarding market abuse and financial crime in the secondary market for cryptoassets; (iii) concerns regarding the volatility in cryptoasset price movements; and (iv) concerns regarding inadequate understanding by retail consumers of cryptoassets and the lack of a clear need for investment products referencing them.

However, derivatives referencing e-money tokens or security tokens are outside the scope of the proposed ban, as are derivatives referencing tokens that are unregulated but not widely transferable.

The consultation will close on 5 October 2019, and the FCA expects to publish a final policy statement and rules in early 2020.

For more information, please contact  Christian DonaghRichard Kelly, Andrew Gill or your usual Matheson contact.