Response
The World Federation of Exchanges (WFE) welcomes the FCA’s proposals aimed at regulating cryptoasset activities. However, the WFE finds the FCA’s stance on the sale of listed crypto-derivatives to retail investors inconsistent with this stance and the stance of the UK government on the suitability of investing in crypto for retail investors.
Supporting Oversight of Crypto-asset Markets
The WFE is broadly supportive of the FCA’s intent to regulate crypto-asset activities. The proposals are naturally aligned with the International Organization of Securities Commissions (IOSCO) recommendations which the WFE supported.
The WFE has consistently advocated for regulatory frameworks that ensure investor protection, and market integrity across all financial markets, including emerging sectors like cryptoassets. In our response to IOSCO's consultation on crypto-asset trading platforms, we emphasized the necessity of applying existing regulatory principles to crypto markets to avoid regulatory arbitrage and ensure consistent standards globally.
The WFE also supports the development of regulatory approaches that are technology-neutral and outcomes-based, ensuring that crypto-asset trading platforms are subject to appropriate oversight. We continue to strongly support the principle of 'same risk, same regulation' to minimise the risk of failures and promote a level playing field between traditional finance and crypto.
Repeal the Ban on Retail Access to Crypto-Derivatives
In 2020, the FCA banned the sale of crypto-derivatives and ETNs to retail consumers. This forced retail consumers to purchase products from unregulated crypto-trading platforms if they wanted exposure to the underlying asset. In other words, the FCA prevented retail consumers from purchasing derivatives products listed on regulated, public, lit markets.
At the time, the FCA argued that these products are
“ill-suited for retail consumers due to the harm they pose. These products cannot be reliably valued by retail consumers because of the:
inherent nature of the underlying assets, which means they have no reliable basis for valuation
prevalence of market abuse and financial crime in the secondary market (eg cyber theft)
extreme volatility in cryptoasset price movements
inadequate understanding of cryptoassets by retail consumers
lack of legitimate investment need for retail consumers to invest in these products
These features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products.”
HM Treasury has published detailed proposals for creating a UK financial services regulatory regime for cryptoassets, including to retail consumers. The FCA’s position on crypto-derivatives is inconsistent with this approach. Recently, the FCA has permitted professional investors to trade in crypto ETNs and is time they revisited this with regards to retail investors.
