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The British government may prohibit cryptocurrency derivatives

The U.K. government may prohibit cryptocurrency derivatives

The UK government is discussing the prohibition of derivative products based on digital coins, as well as restrict crypto-based contracts of difference to the public.

The main topic this week discussed by members of the Financial Conduct Authority (FCA), was the ban on derivatives based on digital coins, as well as limiting the distribution of crypto-based contracts for difference. Consideration of virtual currency futures and options will begin in early 2019.

The FCA said:

"Taking into account the problems related to the protection of consumers and the integrity of those markets, the Agency will discuss the possibility of banning the sale to retail consumers of all derivatives tied to tokens like Bitcoin, including contracts for difference, options, futures and securities".

The report of the Cryptoassets Taskforce, consisting of FCA, Bank of England and the UK Treasury, said that a the proposed prohibition would not cover derivatives referencing cryptoassets that qualify as securities. In addition, the contracts for difference on securities must conform to the restrictions on short-term transactions imposed by the European Security and Market Authority (ESMA).

Unlike futures, by which investors can pay for goods or financial instruments, contracts for difference are financial derivatives based on the difference between the cost of purchase and sale of a digital asset.

European regulators have repeatedly lamented the fact that cryptocurrencies involve large risks for investors, as well as helping to launder money and finance terrorist activities. Such alarmist statements has forced the governments of different countries to introduce the rules, ostensibly to protect investors funds and prevent the risk of financial instability.

The FCA, which has oversight of cryptocurrency derivatives because they are classified as financial instruments, mentioned once again about similar issues in his latest report:

"The U.K. will not tolerate the use of cryptoassets in illicit activity. The government will address these risks by bringing all relevant companies to comply with the rules on combating money laundering and financing of terrorism".

The last report was published almost two months after the speeches some British lawmakers, who demanded regulation of the cryptocurrency industry.

According to the taskforce, the British government is engaged in developing a robust regulatory response that will address identified risks. Regulators will significantly exceed the requirements of the EU Fifth Anti-Money Laundering Directive on combating money laundering to fully answer the questions regarding the use of cryptoassets in illegal activities.

The FCA says:

"The government will discuss a plan of action and will legislate during 2019. In addition, under the control of regulators will turn out to all fiat-to-crypto exchange firms and custodian wallet providers".

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