The Financial Conduct Authority (FCA) revealed that it decided to ban a type of investment that has been considered similar to gambling. As of January 2021, crypto derivatives will no longer be sold to British customers because of the risk of what the FCA described as unexpected and sudden losses.
The financial regulatory body of the UK shared that consumers were at risk of being affected by such losses from investments on certain financial products based on the price of some cryptocurrencies, such as Bitcoin. According to the watchdog, the ban would save British residents, who make such investments, approximately £53 million on an annual basis.
The Financial Conduct Authority shared that the crypto-based or imitative products that are most popular among young male investors aged 20 to 44, were mostly used for speculative purposes that are pretty similar to gambling.
The ban will be officially imposed on trading in derivatives (or, in other words, betting on cryptocurrency prices) rather than on the assets themselves, on January 6th, 2021. According to preliminary expectations shared by the financial regulatory body, the stricter regulation could lead to fees and charges amounting to about £75 million being lost to UK firms.
The upcoming measure already faced some criticism by the community. Many community members shared that the ban would not help the authorities enhance the financial systems, but would only make the ongoing use of cryptocurrencies more complex. Furthermore, some of the idea’s opponents shared that British residents normally lose a much larger amount on gambling every year than the amount spent on cryptocurrencies and their derivatives.
The Ban’s Opponents Say British People Spend Much More on Gambling
The announcement of the upcoming ban to crypto investments akin to gambling led to a 2% to 3% decline in the share value of trading platforms CMC, Plus 500 and IG. The latter, however, note that these products formed a very small part of its business.
The FCA shared that the aforementioned products were not suitable for the local retail consumers because of the harm they could inflict on them. The financial watchdog further noted that financial crime and market abuse, as well as what it described as extreme volatility in the prices of the cryptocurrency assets on which the derivatives are based. The fact that these products pretty much resembled gambling was also found inappropriate for the market.
The interim executive director at the FCA’s strategy and competition division, Sheldon Mills, confirmed that the combination of factors puts retail customers at a high risk of suffering losses in case they trade so-called crypto derivatives. Mills further shared that the financial watchdog had evidence that the practice was happening “on a significant scale”.
Initial plans for a ban were already unveiled by the Financial Conduct Authority in 2019. The idea then faced some criticism, with the opponents of the practice arguing against the claims made by the regulator that the cryptocurrencies on which the controversial derivatives are based have no intrinsic value. However, the watchdog reiterated its claims that, according to evidence, cryptocurrency prices were driven by speculation, which made it resemble gambling.
At the time the FCA said that some retail investors’ feedback suggested that crypto derivatives were mostly used for what it described as “speculative purposes” related to gambling.
- Author
Daniel Williams
