FCA Plans To Ban Crypto Derivatives

This is part of the nation's initiative to have clear guidelines to govern the sector.


British Regulator In Consultations To Ban Derivatives

The British financial sector regulator the FCA is considering banning the sale of derivatives backed by cryptocurrencies. A report by the Financial Times indicates that the Financial Conduct Authority is now going into the consultation phase regarding the issue.

At the moment, the FCA is mandated to provide an oversight role on cryptocurrency derivatives like CFDs and futures. Notably, the authority does not regulate the cryptocurrency market. For derivatives to be sold, the FCA must first issue legal permission.

In a statement released on Monday, the FCA stated that it will engage relevant parties starting in the coming year. The authority wants to determine whether banning the sale would be a good idea or not.

The FCA stand comes in the wake of a report by Crypto assets Taskforce. The task force is made up of members from the FCA, the treasury and the country’s top bank. The team stressed that crypto derivatives pose a lot more risks than market cryptocurrency trading. The report stated that such derivatives can lead to losses that surpass initial investment alongside incurring more charges than planned for.

According to the report by FT, London based trading platforms like IG Group and Plus500 are reaping huge profits from derivatives backed by cryptos.

As part of its consultation plan, the authority seeks to establish a consultation team that will also look into other crypto assets. The team wants to determine if it would be ok to extend its oversight into cryptocurrencies while at the same time offering structures for exchanges and wallet service providers.

According to Iqbal Gandham from CryptoUK, his body was happy with the initiative taken by the FCA. He stated that they hope to have fair regulations that do not lead to roadblocks in the sector. He added that the regulations should be friendly for both clients and investors who are involved in the sector.

In another press statement, the FCA is alleged to have affirmed the notion that cryptocurrency assets lack intrinsic value. The regulator called on investors to brace themselves since cryptos might lose all of their value. The statement added that the assets could pose a risk to stability.

The crypto assets team has suggested a three-fold structure for assets. The structures should be based on whether they can be deployed as an exchange channel, for investment or to back the raising of capital and setting up decentralized systems through ICOs.

At the beginning of this month, RPC based in London stated their belief that regulating the crypto sector will take at least two years.

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