The Financial Conduct Authority (FCA) is looking to ban crypto CFDs for retail clients next year regarding the recent bear market.
An FCA announcement recommends improvements to the model in the current offer base of CFDs to retail consumers. This includes a provision for businesses to reduce contract flexibility and remove monetary and non-monetary benefits to promote trade.
However, concerning cryptocurrencies, the FCA requires an absolute ban on retail-oriented CFDs. This, citing the studies for 2018 from the UK Cryptoasset Taskforce.
“The FCA will consult separately in early 2019 on a potential ban on the sale of derivative products referencing cryptocurrencies, including CFDs, to retail customers”. The organization reported in its announcement.
The UK Cryptoasset Taskforce published on its cryptocurrency market review to warn investors about cryptocurrency derivatives.
“Although regulated, financial instruments that reference crypto assets also produce some specific risks to consumers. Leveraged derivatives, such as CFDs and futures, can cause losses that go beyond the initial investment. The risk of trading losses can be exacerbated by product fees such as financing costs and spreads. As well as by lack of transparency in the price formation of the underlying crypto asset,” Authored the Task Force.
In its conclusion, it has endorsed a “potential prohibition” of retail-oriented derivatives that included “CFDs, options, futures and transferable securities.”
A few months ago, the FCA took steps to ban the crypto CFDs sold to retailers. Thus, limiting the leverage to 2:1 to offset the high volatility in these markets.
The current bear market may have caused this idea’s expediency, as Bitcoin lost most of its value in recent weeks. Anyone who has invested in a CFD expecting to make a return may have suffered significant losses.