U.K. Watchdog Bans Sale of Cryptocurrency Derivatives to Individual Investors

Bitcoin this year has dropped as much as 27% in a single day and gained as much as 17%, according to CoinDesk. A bitcoin machine in London.


Rick Findler/PA Wire/Zuma Press

The U.K.’s financial watchdog said it will ban the sale of derivatives linked to cryptocurrencies to retail consumers.

The ban aims to protect small-time investors from large price swings in assets whose value is linked to cryptocurrencies such as bitcoin, ether or ripple. Under the rules, firms acting in the U.K. will be unable to sell, market or distribute derivatives, including options and futures contracts, to retail customers.

Stocks of spread-betting firms that allow retail traders to bet on cryptocurrency derivatives fell on the news. Shares of

IG Group Holdings

IGG -0.44%

PLC fell 3.6%,

CMC Markets

CMCX 2.48%

PLC fell 1.1% and

Plus500 Ltd.

PLUS 0.59%

declined 3.1%.

The Financial Conduct Authority on Tuesday said it decided to implement the new rules, which take effect Jan. 6, 2021, because of a lack of understanding of cryptocurrency assets by individual investors, the prevalence of financial crime with those assets and volatile price movements. The ban doesn’t apply to trading the cryptocurrencies themselves.

This year, bitcoin has dropped as much as 27% in a single day and gained as much as 17%, according to data from CoinDesk.

“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,” said Sheldon Mills, interim executive director of strategy and competition at the FCA.

While people have focused on the cryptocurrencies themselves, an ecosystem of derivatives tied to the currencies has bubbled up, largely unregulated, said Yaya Fanusie, an adjunct senior fellow at the Center for a New American Security, a Washington, D.C.-based think tank. Individual investors have increasingly started trading them during the pandemic, he said.

The FCA ban, he said, “was a pretty strong move.”

Last year,

Intercontinental Exchange Inc.,

ICE -0.05%

the owner of the New York Stock Exchange, launched a futures market for bitcoin, allowing traders to bet on bitcoin’s rise and fall.

CME Group Inc.

CME -0.87%

has operated its own bitcoin futures since December 2017.

Cryptocurrencies such as bitcoin operate independently of third-party oversight from banks or governments and allow people anywhere in the world to exchange value across the internet in minutes. Cryptocurrencies often pop up in illicit activities, including earlier this year when three people hacked prominent Twitter accounts and solicited payments in bitcoin.

The U.S. permits individual investors to trade cryptocurrency derivatives but has taken closer regulatory oversight of the sector. The Justice Department last week indicted founders and executives of an offshore cryptocurrency derivatives exchange for not maintaining an adequate anti-money-laundering program.

Write to Caitlin Ostroff at [email protected]

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Appeared in the October 7, 2020, print edition as ‘U.K. Bans Cryptocurrency Derivatives for Individuals.’