The FCA has proposed a ban on the sale to retail clients of all derivatives (meaning contract for differences (CFDs), options and futures) and exchange traded notes (ETNs) see here. FCA has not historically been a great "banner". But this looks set to change. Forget product governance, advice pressure and disclosure requirements, just bring in the nanny state.
As the FCA says, "designed to encourage customers to purchase products that are of benefit to them, rather than products which are not appropriate for them". The ban does not apply to professional clients or financial institutions and will also not impact retail investment funds investing in these products.
FCA recognises that its proposals may encourage some retail consumers to "invest" directly in unregulated cryptocurrency rather than through IFAs, after all, the products are currently unregulated by the FCA and retail clients are free to invest in it.
FCA states that retail consumers have an inadequate understanding of cryptoassets and "lack of a clear investment need" for crypto derivatives.
Consumers may indeed have inadequate understanding of crypto derivatives and they probably do underestimate the risks involved. According to the FCA's findings, many consumers see cryptoassets as a fast track to easy wealth. But surely everyone realises that these products are not suitable for investment aims such as retirement, mortgage repayment and school fees? This is very different to the split-capital investment trust scandal and structured products and no one pretends that these crypto things are guaranteed.
IFAC are concerned that a ban will just drive retail clients to invest in crypto derivatives without advice. The FCA's research suggests that consumers donâ€™t always follow advice from authoritaties who have been discredited. But why don't the FCA promote IFAs for advice instead?
Many consumers continue to be influenced by social media and a desire to get rich quick. And, so we are likely to see many "opt up" to elective professional client status and carry on as before. FCA's proposed ban would only apply to selling, marketing and distribution of crypto derivatives to retail clients by firms in, or from, the UK. So international websites can carry on accepting business unaffected by this ban â€“ although they may run into trouble if they solicit business this way. Also, as we all know, Bet365 et al remain effectively unregulated. Is this good news for IFAs or bad news? Difficult to know at this stage, but no IFA can sympathise with those who lose money after not paying for advice â€“ Lendy / LCF / Woodford via HL etc.
The consultation will be open to responses until 3 October 2019. The FCA will publish final Handbook rules in early 2020.