A global federation of exchanges responds to an FCA consultative paper on banning the sale of crypto-derivatives to retail investors.

The World Federation of Exchanges (WFE) is an industry group for exchanges and central counterparties (CCPs). It has asked the UK’s Financial Conduct Authority (FCA) not to impose its crypto-derivatives ban on sale to retail customers. However, it said it fully supported the regulator’s intention to protect vulnerable customers.

It has been the FCA’s apprehension that retail customers would be unable to assess the value and risks from such dealings realistically. Therefore, in a July consultation paper the FCA proposed a blanket ban on the sale of crypto-derivatives to vulnerable retail clients.

Further, the FCA estimates that the ban could help retail customers avoid losses in the range of $92-$289 million.

Crypto-derivatives ban: Throwing the baby out with the bathwater?

The WFE said in its comments on the consultative paper that the FCA needed to strike a judicious balance. On the one hand, the FCA should permit the development of markets that traded innovative products; on the other, protect customers.

In its response, the WFE said an all-encompassing ban of crypto-derivatives would also unreasonably envelop regulated exchanges and CCPs. These entities operate under strict regulations to ensure pre- and post-trade risk management standards are met.

“Consumer protection must be foremost when seeking to regulate new and innovative products,” said Nandini Sukumar, Chief Executive Officer, WFE. “While crypto asset products have real potential, the market has suffered from unregulated providers distributing inappropriate products.”

Do it right, says the WFE

Instead, the WFE suggested various measures such as the implementation of ‘standards’, a review of underlying market structures, and a review of the ban — if introduced — to ensure consumer choice and access.

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