The World Federation of Exchanges ("WFE"), the global industry group for exchanges and CCPs, has asked the Financial Conduct Authority (“FCA”) not to ban the sale of crypto derivatives to retail consumers while supporting the regulator’s desire to better protect vulnerable consumers.
The FCA consulted the industry on measures to protect investors, who may seek to buy crypto-based futures, options, and contracts for difference and exchange-traded notes. In its response, the WFE emphasised its desire to help find the right balance between enabling innovative products to be traded in the UK, and ensuring that they are sold responsibly, by fully regulated providers. The WFE recognises the volatility identified by the FCA in its consultation report and is supportive of ensuring that proper consumer protection is put in place as a priority for any new and relatively untested product on the market.
The WFE cautioned, however, that an outright ban, under current proposals, would envelop regulated exchanges and CCPs who operate under stringent regulations to provide pre- and post-trade risk management standards which are designed to foster safe and efficient markets.
The WFE made the following recommendations:
- That regulators give consideration to the underlying market structures; the structure of established, fully regulated exchange and CCP operators significantly diminishes the risk profile for retail investors participating in these markets.
- That there is caution in applying the same measures to exchange-traded and centrally cleared derivatives as to underlying crypto asset markets, as this could create unintended consequences.
- That options to mitigate excessive risk exposure for retail consumers should be pursued alongside the potential introduction of ‘standards’ for such products, particularly as the crypto market is evolving and maturing.
- A review on the ban (should it be implemented) as the market evolves for the purposes of ensuring consumer choice and access. This review is also designed to avoid international market fragmentation, particularly if international standard setters introduce a new global regulatory approach to the regulation of crypto assets.
Nandini Sukumar, Chief Executive Officer, WFE said: “Consumer protection must be foremost when seeking to regulate new and innovative products. While crypto asset products have real potential, the market has suffered from unregulated providers distributing inappropriate products. Market infrastructures that adhere to strict regulatory requirements, embed consumer protection as part of their mandate and understand that integrity is fundamental to well-functioning markets, are best placed to deliver these products and support the developing marketplace. We ask that authorities, including the FCA, chart the right regulatory course to allow the market to flourish and benefit its consumers even as we understand that it’s a balancing act.”