New FCA rules on crypto derivatives to come into effect in January 2021

Back in 2019, the Financial Conduct Authority (FCA) put forward a proposal to impose a ban on crypto derivatives for retail investors, including options, futures, contracts for difference, etc. 

And in October 2020, it published PS20/10 – a policy statement prohibiting the sale to retail clients of derivatives and exchange-traded notes referencing certain types of unregulated crypto assets.

With this approach, the regulator hoped to prevent inexperienced investors from falling prey to a complex and rapidly-changing market.

Derivatives are potentially high-risk and complicated investment instruments. And therefore, the FCA has made the right call to regulate these types of instruments in the UK in order to protect the interests of the public.

The regulation of cryptocurrency derivatives exchanges ensures that risks are presented to the general public on reasonable levels, and in doing so, helps retail investors protect their money.

The new rules will come into force on 6 January 2021, after the end of the transition period. 

As we have already seen what has happened with BitMEX in the US, there will likely be a negative effect on the players in the market who, up until this point, ignored or neglected this regulation. 

The FCA issued guidance on this a long time ago and gave a fair amount of warning to the players to adapt and to offer services which are in-line with the latest regulation and guidance for the FCA.