- The move is the first major intervention in the UK cryptocurrency market
- The Taskforce plans to implement the proposals in early 2019
- The proposed changes on crypto-CFDs will hurt large crypto players
The government watchdog contemplates launching a consultation that will contemplate banning crypto-based derivative sales. The move, the first major intervention in the UK cryptocurrency market, is likely to affect instruments such as contracts for differences, futures, and options.
Bad Times Ahead?
The U.K’s Crypto Assets Taskforce’s report released on Monday, October 29, 2018, has proposed changes for cryptocurrency regulation which have also raised concerns on how digital assets are used and traded. The Taskforce which was launched in March comprises the Financial Conduct Authority (FCA) and the Bank of England (BOE) and was mandated to regulate and support crypto technologies.
According to the report, there are “concerns identified around consumer protection and market integrity,” and as a result, a ban on the sale of crypto-CFDs to retail investors is something the FCA was considering but will consult with regulators and other stakeholders to exclude “crypto assets that qualify as securities.” However, the report adds that CFDs on cryptos will still be regulated by ESMA’s regulations on cryptocurrency CFDs.
The Taskforce plans to implement the proposals in early 2019 and come amid fears that crypto assets can cause losses for amateur customers that put heavy investments while marketers are aggressively selling the products. The report further reads:
“The risk of trading losses can be exacerbated by product fees such as financing costs and spreads, as well as by a lack of transparency in the price formation of the underlying crypto asset.”
Difficulty in Regulation
There is currently no universally agreed on definition of crypto assets and because they differ per the rights they provide to their holders, the Crypto Assets Taskforce has suggested a framework that contemplates three types of crypto assets. These include those crypto assets that are used as a means of exchange, for investment and those that support capital raising crypto the development and decentralization networks via Initial Coin Offerings (ICOs).
The report also observes that cryptocurrencies for differences (CFDs) and futures can cause losses which are made worse by product fees, financing costs and lack of transparency and FCA suggest the following prohibition:
“Given concerns identified around consumer protection and market integrity in these markets, the FCA will consult on a prohibition of the sale to retail consumers of all derivatives referencing exchange tokens such as Bitcoin (BTC), including CFDs, futures, options and transferable securities.”
Should the proposals be confirmed, the action on crypto-CFDs will further hurt large players in the market, which have already signaled fears about their earnings following ESMA’s new rules.