UK officials consider banning retail sale of crypto derivatives

Cryptoasset Taskforce highlights key risks associated with crypto in new report

UK officials consider banning retail sale of crypto derivatives

The UK’s Cryptoasset Taskforce, a body comprised of representatives of the HM Treasury, the Financial Conduct Authority (FCA) and the Bank of England (BoE) yesterday issued a report on the country’s policy and regulatory approach to digital currencies. The report focuses on the risks associated with cryptocurrencies, as well as the measures UK authorities plan to take in order to mitigate those risks.

“Whilst the Taskforce appreciates that cryptoassets have the potential to bring benefits to markets, firms and consumers, there remains considerable risks that HMT, the Bank of England and the FCA will take action to mitigate,” the FCA wrote in a statement published yesterday.

According to the regulator, key risks include harm to consumers and market integrity, the use of cryptoassets for illicit activities and potential future threats to financial stability.

The taskforce plans to launch a consultation by Q1 2019 on whether the regulator should issue a ban on the sale to retail consumers of crypto derivatives, including contracts for differences, options, and futures. The taskforce’s report states that leveraged derivatives “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 a lack of transparency in the price formation of the underlying cryptoasset,” the report reads.

In its statement, the FCA also noted that the taskforce planned to have a separate consultation by the end of this year to determine which crypto coins fall within the existing regulatory perimeter and those cryptoassets that may fall outside. Another consultation will be launch next year, aiming to explore how “exchange tokens”, such as Bitcoin should be regulated.

“Given the complexity and new challenges presented to traditional forms of financial regulation, more time is needed to consider how regulation can meaningfully address the risks posed by exchange tokens, such as Bitcoin,” the statement reads.

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