UK crypto community reacts as FCA derivatives ban goes into effect

The ban placed by financial regulators in the United Kingdom on the sale of crypto derivatives to retail traders is now in force.

On Wednesday, the decision by the United Kingdom's Financial Conduct Authority to ban crypto futures and exchange-traded notes finally went into effect.

The FCA initially announced the ban back in October 2020 following a year-long consideration of the matter. At the time, the FCA argued that crypto derivatives were ill-suited to retail investors who were at risk of incurring significant losses.

Commenting on the decision as the ban went into effect on Wednesday, Ian Taylor, chair of the self-regulatory trade group CryptoUK, told Cointelegraph:

“The regulator is clearly focused on consumer protection, and rightfully so. Derivatives allow for leverage — enabling investors to magnify their gains, but equally their losses. The FCA has raised concerns about retail investors being exposed to significant losses and volatility, that they may not fully appreciate.”

However, Taylor faulted the FCA’s characterization of retail crypto derivatives investors as unsophisticated. The CryptoUK chair also remarked that the FCA could have opted for stricter leverage limits similar to the restrictions placed on contracts for differences, rather than placing a blanket ban.

With the ban in place, crypto derivatives can no longer be included in individual savings accounts, or ISAs and self-invested personal pensions, or SIPPs. However, there are concerns that the move might push investors towards unregulated offerings in other jurisdictions that pose even greater risks to retail investors than the products previously on offer in the U.K.

At the time of the ban's initial announcement, some critics of the decision pointed to possible negative implications for U.K. crypto adoption. Simon Peters, a crypto analyst at multi-asset investment platform eToro dismissed these fears, telling Cointelegraph:

“In my experience working with our higher equity U.K. clients at eToro, most want to hold the actual crypto asset rather than trading a derivative such as a CFD, as they recognize the utility of holding the underlying crypto asset.”

Indeed, crypto adoption appears to be on the rise in the U.K. Back in June 2020, the FCA estimated that cryptocurrency ownership among the adult population stood at 2.6 million. This crypto embrace is also moving to the institutional side with U.K.-based investment manager Ruffer recently converting 2.5% of its asset base to Bitcoin.