Shearman & Sterling LLP | FinTech Insights | U.K. Conduct Regulator Proposes Banning the Sale to Retail Clients of Derivatives Referencing Crypto-Assets
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  • U.K. Conduct Regulator Proposes Banning the Sale to Retail Clients of Derivatives Referencing Crypto-Assets
    07/09/2019
    The U.K. Financial Conduct Authority (FCA) has launched a consultation proposing to restrict the sale, marketing and distribution of derivatives and exchange-traded notes (ETNs) that reference certain types of unregulated, transferable crypto-asset to all retail clients by firms in, or from, the U.K. The FCA consultation follows the final report of the U.K. Crypto-Assets Task Force in October 2018. The FCA's view is that although the U.K.'s market in crypto-assets is relatively small, there is still a consumer protection issue that needs to be addressed.

    The FCA's product intervention powers are being exercised under the Markets in Financial Instruments Regulation and, where the FCA has gone beyond those powers, the Financial Services and Markets Act 2000.  These legislative measures allow it to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern. Using these powers, the FCA recently adopted a permanent ban on the sale of binary options to retail clients.

    The proposed prohibition will cover contracts for difference, futures and options relating to crypto-assets. The proposed ban would not apply to professional clients or eligible counterparties or to derivatives or ETNs that reference other tokens, funds or out-of-scope instruments. The ban would apply to products sold, distributed or marketed in or from the U.K. to retail clients, including sales to U.K. retail clients by other firms within the EEA, including where the retail client approaches the firm about the product (i.e. reverse solicitation) and outbound sales of these products from the U.K.

    The consultation closes on October 3, 2019. The FCA intends to publish its final policy and rules early in 2020.