Earlier this month the Financial Conduct Authority (“FCA”) published a consultation paper on prohibiting the sale to retail clients of investment products that reference crytpoassets (“Consultation Paper”).

The Consultation Paper proposes a ban on marketing, distribution and sales of all derivatives and exchange traded notes (“ETNs”)  that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.

The Consultation Paper continues the crypto-regulation trend as the FCA looks to further clarify its position on this area.




The proposed ban covers derivatives (i.e. options, futures and contracts for difference (“CFDs”)) and ETNs which reference ‘unregulated transferable cryptoassets’ by FCA-regulated firms acting in, or from the, UK to retail consumers (i.e. ‘retail clients’ as defined in the conduct of business (“COBS”) sourcebook at 3.4).

The ban would be implemented through proposed changes to COBS and the proposed changes are set out at the end of the Consultation Paper (from page 34 onwards).

The Consultation Paper clarifies that the proposed ban would not apply to:

  • professional or eligible counterparty clients;
  • derivatives or ETNs that reference other tokens; or
  • collective investment undertakings (funds).


The FCA are seeking to reduce the harm to retail consumers caused by the sale of derivatives and ETNs referencing unregulated transferable cryptoassets due to:

  • inherent nature of the underlying assets, which have no reliable basis for valuation;
  • the prevalence of market abuse and financial crime in the secondary market for cryptoassets (e.g. cyber theft);
  • extreme volatility in cryptoasset prices movements; and
  • inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them.

Based on the FCAs cost benefit analysis, it is estimated the ban could reduce consumer losses by between £75m and £234.3m as a result of sudden and unexpected losses that could arise as a result of investing in such products.

The FCA also acknowledges that the proposed ban could result in the following unintended consequences:

  • retail investors investing directly in unregulated tokens;
  • firms offering derivatives and ETNs referencing other tokens;
  • firms encouraging retail clients to ‘opt up’ to professional client status; or
  • firms moving their accounts to affiliated non-UK entities.

The FCA will continue to monitor these risks.


The FCA is seeking feedback on the proposals in the Consultation Paper from interested parties by 3 October 2019. The FCA plans to publish a final policy statement and final Handbook rules in early 2020.

To view the Consultation Paper, please click here.