UK Regulators at Odds on Potential Ban

UK regulator Rishi Sunak and FCA Nikhil Rathi.
  • UK regulators are currently at odds over the potential ban on derivatives and ETN offerings related to cryptocurrencies to retail investors
  • The Financial Conduct Authority (FCA) implemented a wide-ranging ban on the 6th of January 2021, despite most consultees disagreeing with the prohibition as excessive.
  • The review by the Regulatory Policy Committee (RPC) illustrates a divergence of opinion between the FCA and the government on what constitutes appropriate regulation.

Policymakers in the United Kingdom are currently divided on regulating the marketing and distribution of derivatives and exchange-traded notes (ETNs) tied to cryptocurrencies. On the 6th of October 2020, the Financial Conduct Authority (FCA), the chief British regulator, announced a blanket ban on crypto-related offerings. 

The decision was revealed despite 97% of respondents to the FCA’s consultation opposing the prohibition as “disproportionate.” The ban came into effect on the 6th of January 2021.

Criticism Mounts Against the FCA’s Blanket Ban

The ban has been criticized by industry players who argue that retail investors can assess the risks and value of crypto derivatives. The imposition of the ban sparked a review of the decision by the RPC. 

On January 23, 2023, the RPC, a public advisory body sponsored by the government’s Department for Business, Energy, and Industrial Strategy, laid out its case against the FCA’s prohibition.

Using cost-benefit analysis, the RPC estimated annual losses from the measure at roughly £268.5 million British pounds (approximately $333 million USD). The RPC further asserts that the FCA did not provide a clear explanation of what would happen in the absence of the prohibition, nor did they provide the methodology or calculations used to estimate the costs and benefits of the ban. 

Based on this evaluation, the RPC rated the prohibition in the “red level,” meaning that it is not fit for purpose.

Regulators Struggle to Find Appropriate Oversight

The RPC’s negative overview will not necessarily lead to a direct reversal of legislation. However, it does highlight a difference in understanding of what constitutes reasonable regulation by the FCA. 

The government has been fostering the development of the digital industry. Still, the ongoing debate on the prohibition of derivatives and ETNs tied to cryptocurrencies illustrates a lack of unity among regulators on the appropriate level of oversight required for the rapidly-evolving industry.

On the Flipside

  • The RPC’s evaluation will not necessarily determine a change in regulatory approach by the FCA.
  • The FCA has stated that these products are complex and lack a reliable basis for valuation, making them high-risk for retail customers.
  • Critics argue that the RPC’s evaluation does not consider the potential losses and harm that retail investors may face without proper regulation.

Why You Should Care

The outcome of this debate will have a significant impact on the availability and accessibility of crypto derivatives and ETNs for retail investors in the UK.

The discussions provide insight into the ongoing talks among regulators on the appropriate level of oversight for the crypto industry and how best to strike a balance between protecting consumers and fostering innovation.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Kyle Calvert

Kyle Calvert is a budding reporter at DailyCoin with a passion for gaming, esports, and cryptocurrency. With a Bachelor's Degree in Esports and a Master's Degree in Esports and Blockchain Technology, Kyle brings a unique blend of expertise to the DailyCoin team. Since 2017, Kyle has been involved in the cryptocurrency space, has been actively trading and researching the industry since 2019.