FCA Hints at Strict Regulations on Cryptocurrency Derivatives in its Annual Report 2018


FCA released its Annual Report and Accounts for the year ended March 31st 2018 highlighting key areas of change in the financial regulation world. Cryptocurrency derivatives regulation was a major point of discussion in the report.

The British financial regulator, Financial Conduct Authority (FCA) issued a strong indication of tougher regulation on cryptocurrency futures. FCA released its Annual Report and Accounts earlier today, July 9th 2019 focusing on the previous year’s developments including actions to stop scams and the regulation of derivatives to retail customers.

The annual report further highlights life after Brexit, user protection against high cost of credit and the overall conduct in the financial ecosystem to discourage scams and hacks. Furthermore, the report looks at the problems in the financial system that could cause retail investors huge losses as well as flag areas that require change in the future.

Retail investors are a target to the regulators in U.K as plans to restrict the marketing, sale and trading of derivative products gets underway. The regulator recently announced plans to set up limits on the leverage unsophisticated and novice traders can place on their trades to avoid great losses.

A Ban On Cryptocurrency Derivatives?

The world of cryptocurrency remained in a bear trap for the better part of 2018 following a massive soar in value of tokens in the industry in 2017. However, the number of scams and hacks reported in 2018 remains in the same range despite the declining market during the year.

One of the main highlighted points on the FCA report is the alarming number of cryptocurrency related scams on unknowing investors in Britain. The increasing concern among the population for regulators to reduce the number of scams in the industry is a key issue the report reads.

In response to the increasing number of scams, FCA plans to do away with cryptocurrency derivatives altogether including CDFs, futures and options. This comes in light of several warnings to investors against shady crypto investments including the get rich quick scams, the ICAP Crypto – a cryptocurrency firm – scandal and other scams even some using the agency itself.

The ropes get thinner on cryptocurrency investments in the country since the establishment of the cryptocurrency asset task force that offers guidance to the regulators. The report released by the task force encourages the ban of cryptocurrency derivatives citing the “concerns identified around consumer protection and market integrity”.

The cryptocurrency derivatives market is set to live with the new restrictions limiting leverage available to trade cryptocurrency futures, options or CDFs. Despite FCA recent restrictions such as reducing losses on cryptocurrency derivative trades by retail buyers, the possibility of a ban on these digital assets looks to be setting in soon.

Despite the annual report and accounts review offering harsh words to the cryptocurrency investors in Britain, FCA remains committed to seeing the industry flourish through the set regulations. Earlier this month, the British financial regulator approved the first cryptocurrency hedge fund, Prime Factor Capital Asset Manager, to operate as a “full-scope Alternative Investment Fund Manager”.

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