Starting January 6 2021, retail cryptocurrency traders in the United Kingdom (UK) will be prohibited from accessing crypto derivatives products, in an effort to protect the investors from possible risks associated. This comes as the final regulations of the country’s financial watchdog, the Financial Conduct Authority (FCA), concerning this product. The regulator also blacklisted the investors from accessing exchange-traded notes (ETNs).
FCA bans crypto derivatives and ETNs
As published on Tuesday, the statement from the regulator reads that the provision, distribution, and marketing of ETNs or crypto derivatives products that reference unregulated transferrable crypto-assets such as Bitcoin (BTC), Ether (ETH) or Ripple (XRP) will be prohibited in the country at the stated date. This means that cryptocurrency companies offering these services to retail investors will have to stop, but may be able to service institutions.
The ultimate reason behind FCA’s regulation today is geared towards investors protection. The regulator highlighted these investors are increasingly exposed to unexpected losses if they continue trade crypto derivatives or ETNs. The regulator specified five reasons for this, which firstly noted that the underlying assets of such products do not have a reliable basis for valuation. Secondly, they are liable for cyber theft.
Thirdly, the underlying crypto-assets maintains high volatility. Fourthly, most of the retail investment in the country do not possess enough knowledge about these crypto-assets. Lastly, there is no legitimate investment need as to why these investors should engage in crypto derivatives or ETNs, as the regulator asserted.
The UK might save $68M from the new rule
Additionally, the FCA mentioned in the press statement on Tuesday that the enforcement of the new regulation by next year will ultimately help the investors to save up to $68 million (£53m), as they stop trading these products. As the new regulation becomes effective by January, any company offering such services should be regarded as an investment scam, the FCA said.
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