The U.K.’s Financial Conduct Authority (FCA) officially banned the sale of cryptocurrency derivatives to retail users

Today, the U.K’s Financial Conduct Authority (FCA) officially banned the sale of cryptocurrency derivatives and exchange-traded notes to retail users, more than a year after first proposing such a ban. The European Commission’s newly proposed cryptocurrency regulations pose a specific risk for the decentralized finance (DeFi) industry.

FCA officially banned the sale of cryptocurrency derivatives to retail users

FCA said:

“These products are ill-suited for retail consumers due to various reasons, including extreme volatility of cryptocurrencies. There is no legitimate investment need for retail consumers to invest in these products. Hacks, inadequate understanding, and cryptocurrencies’ no reliable basis for valuation are some other listed reasons for the ban.”

Sheldon Mills, FCA’s interim strategy and competition director, said:

“This ban reflects how seriously we view the potential harm to retail consumers in these products.”

The ban will take effect on January 6, 2021. The FCA estimates that retail consumers will save approximately £ 53 million (~ $ 68 million) from the ban on these products.

The European Commission’s newly crypto regulations pose a specific risk for DeFi industry

Adopted by the European Commission on Sept. 24, the proposed Markets in Crypto-Assets (MiCA) regulations aim to strengthen consumer and investor protection in the crypto industry by laying out a series of obligations on crypto-asset issuers.

The regulations stipulate that crypto-asset issuers must be incorporated as a legal entity in order to operate crypto services in the European Union. This particular requirement, however, could represent a significant challenge for DeFi projects because DeFi tokens’ issuers are at times unidentifiable.

Industry regulatory adviser XReg Consulting outlined in an Oct. 5 report:

“The obligation that crypto-asset issuers must be incorporated in the form of a legal entity could pose significant challenges for DeFi projects where issuance is decentralized and there is no identifiable issuer.”

MiCA may generally promote consumer and investor protection, market integrity, and financial stability. However, the DeFi industry may eventually see significant and irreconcilable regulatory challenges and possible existential questions, at least in Europe.

While the European Commission has given MiCA its stamp of approval, the proposed regulations must go through additional regulatory review within the European Union, a process that could take over a year.

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