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UK’s FCA bans retail crypto derivatives after year-long consideration

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In a landmark decision issued on Tuesday by the U.K.’s Financial Conduct Authority, companies in the country will no longer be able to offer cryptocurrency derivatives products such as futures, options and exchange-traded notes (ETNs) to retail customers.

The decision comes almost exactly one year after the regulator first proposed banning these products. In a statement released by the FCA, the regulators claim that cryptocurrency derivatives are “ill-suited for retail consumers due to the harm they pose.”

Several reasons are provided for more detail, including concerns that they have “no reliable basis for valuation,” are subject to abuse and financial crimes, and are extremely volatile.

Further motivations cited include the “inadequate understanding of cryptoassets by retail consumers” and a claim that retail investors lack a “legitimate investment need” for these products.

The ban will come into effect on Jan. 6, 2021. The regulator warned that “as the sale of derivatives and ETNs that reference certain types of cryptoassets to retail consumers is now banned, any firm offering these services to retail consumers is likely to be a scam.”

Regulators say that this measure would “save around £53m” for retail consumers, presumably in trading losses.

“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

One of the companies hit hardest by the ban will be CoinShares, which last year mounted a campaign to convince the regulator to abandon its plans. CoinShares offers ETNs and other types of crypto products aimed at traditional markets.



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New York authorizes first Yen stablecoin operator in the US

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New York has given the first authorization to a stablecoin backed by the Japanese Yen to operate in the U.S.

Per a Dec. 29 announcement, the New York Department of Financial Services has granted Japanese firm GMO-Z.com a charter to handle U.S.D. and Yen-backed stablecoins in New York. 

Given New York’s status as a global center, the NYDFS is the most prominent state financial regulator in the U.S. It is also one of the most aggressive. A pass to operate in New York often opens up the rest of the country. 

GMO’s charter is as a limited liability trust company rather than a full bank, the principle difference being in authorization to handle deposits. While a stablecoin operator typically needs the ability to hold reserves of the pegged asset, GMO’s charter limits its rights to hold other kinds of deposits not central to its ability “to issue, administer, and redeem” its stablecoins. 

The right to issue such non-depository charters has been a bone of contention between state regulators like the NYDFS and national banking regulators in the U.S. 

GMO president and CEO Ken Nakamura said: “We’re breaking ground with our move to issue the first regulated JPY-pegged stablecoin, which many see as a safe haven asset.” 

The NYDFS recently made changes to its famous BitLicense, including a conditional format that buddies up newly licensed firms with existing licensees. The first conditional BitLicense went to PayPal, facilitating the launch of its new crypto services earlier this fall with the help of longstanding licensee Paxos.