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Reporting from The Guardian, the UK market regulator proposed a ban on financial instruments related to digital cryptocurrency such as bitcoin, by warning that the product could cause huge losses for retail consumers who did not understand the risk or its value.
Extreme Volatility
The authority, the Financial Conduct Authority (FCA), said products such as derivatives and securities traded on the exchange or Exchange-Traded Notes (ETN) that reference crypto assets are "incompatible" with small investors. This refers to "extreme volatility" in the prices of crypto assets, difficulties in valuing them, uncertain consumer understanding of what they are buying, and increased risk of financial crime.
"Investors have the potential to suffer losses due to sudden and unexpected losses if they invest in these products," said the FCA, which estimates that the ban will benefit consumers in the range of between 75 million and 234.3 million pounds a year.
The proposed ban will affect complex financial products such as contracts for difference (CFD), options, and futures contracts, as well as traded banknotes.
Christopher Woolard, Executive Director of strategy and competition at FCA, said: "Like our work in the broader CFD and binary options market, we will act when we see bad products sold to retail consumers. These are complex contracts built on complex assets. Most consumers cannot properly assess derivatives based on unregulated crypto assets. Prices are highly volatile and as we have seen globally, financial crime in the crypto asset market can cause sudden and unexpected losses. Therefore, it is clear to us that these derivatives and notes traded are investments that are not suitable for retail consumers. "
Woolard had previously warned Facebook of plans to create their new cryptocurrency called Libra which will be launched next year. Facebook's plan will require close supervision from regulators.