2 August 2019

FCA proposes cryptocurrency sale ban to retail customers

Cryptocurrency has been seen as an emerging market in recent years, but we could be set to see the Financial Conduct Authority (FCA) imposing a ban on the sale, marketing and distribution of cryptocurrency, such as Bitcoin, to retail customers. The FCA defines retail customers as those individuals who are acting outside of their trade, profession or business i.e. most investors.

The proposed ban would include derivatives and Electroneum (ETN) which are based on cryptocurrencies.

This comes after the FCA released a publication on 1 July detailing the potential ban on what it describes as “ill-suited” products to lower value investors.

The FCA sees products such as Bitcoin as volatile and potentially very risky for retail customers.

The price of Bitcoin has been subject to wild fluctuations recently, with nearly 30% dropping off its price in just a week at the start of July, to leave the price at £7,950 per one Bitcoin – a stark contrast to the near £20,000 high of late 2017.

The FCA also says that it is looking to protect retail customers because many lack an adequate understanding of cryptocurrencies. This leaves small investors at risk of losing large sums of money. There is a perceived lack of transparency around the valuations of products.

Cryptocurrencies have underlying assets but they also have no reliable basis for valuation, which makes it an extremely difficult market for the investor to assess accurately.

There are also concerns surrounding the increase in cybercrime and the potential impact this could have on investors in cryptocurrencies. The higher risk of cybercrime leaves those investing vulnerable to sudden and unexpected losses.

It is estimated that a ban could save consumers between £75m and £234m a year – the FCA’ s proposal is open for comments until 3 October.

The authority has said it considered recommending the use of mandatory risk disclosures as an alternative to a ban but this was ultimately rejected because of fears that these would not be heeded by retail customers.

This potential ban comes in the midst of Facebook’s plans to launch Libra, a new cryptocurrency, next year, which is likely to face intense scrutiny from regulators.

If you have any issues or queries concerning cryptocurrencies or with investments generally, please contact Adam Finch on 01242 211 635 or at afinch@hcrlaw.com

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Adam Finch, Partner

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