They can't stop you buying Bitcoin or other cryptocurrencies, but they can ban almost anything based on its price being sold to
people in the UK by firms operating here
* Any trading scheme based on Bitcoin's price is now banned in the UK(Image:
AFP)
Every firm operating in or out of the UK has just been banned from selling
products based on Bitcoin's price to consumers.
That's after City regulator the Financial Conduct Authority (FCA) announced new rules in an effort to stop honest Brits being
ripped off by those taking advantage of how few people understand this new breed of "cryptocurrencies".
The FCA's Sheldon Mills said: "This ban reflects how seriously we view the potential harm to retail consumers in these products.
Consumer protection is paramount here.
"Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers
at a high risk of suffering losses from trading crypto-derivatives.
"We have evidence of this happening on a significant scale. The ban provides an
appropriate level of protection."
You can't ban Bitcoin, you can ban people selling access to it
As an asset - albeit a digital one - the FCA can't stop people buying Bitcoin
or other cryptocurrencies directly.
However, it absolutely CAN ban people selling products based on their prices
that are regulated by firms acting in, or from, the UK.
As such it's stopping the sale of derivatives and exchange traded notes (ETNs)
referencing certain types of cryptoassets.
Broadly speaking - that's any product sold to the public that lets you make or lose money based on a cryptocurrency's current or
future price.
The ban will come into effect on 6 January 2021.
It also means, after that date, you can be pretty sure anyone offering you that
sort of product is a scammer.
"As the sale of derivatives and ETNs that reference certain types of cryptoassets to retail consumers is now banned, any firm
offering these services to retail consumers is likely to be a scam," the FCA said.
The FCA brought the ban in as it said these products are "ill-suited to retail consumers" as it's not possible to reliably work
out their value or the risks they involve.
More specifically there were problems thanks to the:
* inherent nature of the underlying assets, which means they have no reliable
basis for valuation
* prevalence of market abuse and financial crime in the secondary market (eg
cyber theft)
* extreme volatility in cryptoasset price movements
* inadequate understanding of cryptoassets by retail consumers
* lack of legitimate investment need for retail consumers to invest in these
products
Put together the FCA said that meant consumers could "suffer harm from sudden and
unexpected losses if they invest in these products".
"The FCA estimates that retail consumers will save around £53m from the ban on these
products," the FCA said.
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Anthony Morrow, co-founder of financial advice firm OpenMoney, said: “Today’s announcement is an important step forward in
protecting consumers from financial harm. ‘Investing’ in cryptocurrency is really no different to gambling with your cash.
"These products are complex, sophisticated investments which offer a real possibility of losing all your money very quickly.
Unlike traditional investments in stocks and shares and investment funds, companies selling cryptocurrencies do not have to be
regulated by the Financial Conduct Authority (FCA) and they are not protected by the Financial Services Compensation Scheme or
Financial Ombudsman Service if something goes wrong.
"I don’t believe they have a place in most people’s financial plans and am pleased to see the FCA tightening the regulations
around their sale."
Cryptocurrency trading platforms were quick to point out that buying and
selling the underlying assets was still allowed.
CoinCorner chief executive Danny Scott said: “We need to make it clear that they’re banning products such as derivatives (CFDs,
futures, etc), they’re not banning the sale or use of Bitcoin."
He added: “From our current understanding, this doesn’t affect Bitcoin exchanges like ourselves, but it will affect companies such
as . . . eToro that offer a CFD rather than the asset itself.”
Edward Drake, head of compliance and operations at eToro, said: "The role of regulation is to protect consumers, which is what
this latest ruling from the FCA is aiming to do. 84% of eToro UK client positions are in the real underlying asset with no leverage.
"As a result, we're confident eToro will be less affected by the new legislation than many others in the market and that our
clients will continue to enjoy uninterrupted access to crypto as real assets.
"What this does highlight is people need to be aware of the risks associated with investing, do their homework on what they're
investing in and be confident they are investing on a secure and regulated platform. These rules apply across all asset classes
from crypto to stocks."
Revolut told Mirror Money its customers would be unaffected, as it sells crypto
currencies directly, and not through derivatives.
--
Kim Holburn
IT Network & Security Consultant
T: +61 2 61402408 M: +61 404072753
mailto:[email protected] aim://kimholburn
skype://kholburn - PGP Public Key on request
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