Financial regulatory body from the United Kingdom, Financial Conduct Authority (FCA), raised concern regarding crypto-derivatives that are becoming increasingly popular among traders. They believe how derivatives and ETNs are carrying a high risk, as consumers fail to asses all risks related to this type of trading.
According to the FCA, traders fail to do so due to the fact that there is no real basis for the valuation of cryptos. They also expressed concern regarding financial crimes and cyber theft involved in trading with crypto derivatives. Another issue is volatility and unpredictable price movements in crypto markets that result in higher risks. Considering how cryptocurrencies are relatively new, it is impossible for traders to have an adequate understanding of crypto-assets as well as a tenable trading plan.
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Financial Conduct Authority suggests banning the sale, advertising, and distribution to retail consumers. The ban would include CFDs and ETNs, as well as all unregulated assets related to cryptos offered by companies from or in the United Kingdom. They believe how this ban could bring benefits anywhere from £75 million to £234.3 million a year.
This proposition is the result of a greater plan that should finally put the online trading industry in order. In July 2019, the FCA already announced some new rules for brokers offering CFDs, including leverage limits (2:1) on crypto CFDs. In January 2019, the FCA issued Guidance on Cryptoassets (CP19/3), a plan about how to address the issue of crypto trading in the UK.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered a speech regarding cryptocurrencies and similar innovations in financial markets:
“We need to ensure that innovation works in the interests of consumers. To do that, we need to thoroughly understand the business models firms are suggesting and how they benefit consumers. We need to consider whether consumers understand and actively consent to the trade-offs inherent in those business models. And we need to consider the wider impact on market integrity and stability.”
It is believed that the FCA will continue with executing CP19/3 this year, and there are more changes to come.