LMAX's CEO breaks down the real impact of the U.K. crypto derivatives ban

Episode 43 of Season 2 of The Scoop was recorded remotely with The Block’s Frank Chaparro and David Mercer, CEO of LMAX Group.

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Earlier this month, the U.K's Financial Conduct Authority (FCA) banned the sale of cryptocurrency derivatives and exchange-traded notes to retail users, sparking concern that the regulator didn't listen to feedback on the proposal.

The ban will take effect in January of next year, affecting crypto brokers, investment platforms, financial advisers and, of course, derivatives exchanges. But, David Mercer, CEO of LMAX Group, said what the ban really does is effectively halve the leverage. The FCA had already limited leverage to retail customers to two-to-one, now it's one-to-one.

"You've banned derivatives, but actually you've just halved leverage. It's one-to-one rather than two-to-one. That's all that's really happened," said Mercer. "What they're saying to everyone, you can own crypto assets, you just can't own it on leverage."

Still, Mercer said there is a duty in capital markets to protect retail investors and firms have a duty of care. LMAX Digital, owned by LMAX Group, is a regulated broker in the U.K., trading mostly spot, but clients still pass suitability tests indicating their understanding of the product. Working with regulators, even when you disagree with them — and Mercer said he does disagree with the ban — is key.


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Mercer laid out why he thinks the FCA took such an aggressive approach on this issue as well as its implications on this episode of The Scoop. He also touched on:

  • Why normal corporate firms are beginning to set aside part of their balance sheets to bitcoin, and why Mercer says it's inevitable that bigger traditional funds begin allocating portions of their portfolio to bitcoin
  • How the market responded to regulator cases against BitMEX
  • The implications of the FCA ban and how the regulator's influence might change by ignoring crypto stakeholders
  • Why he thinks a significant bank will move into the marketplace in 2021 and what that will do for crypto.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.


About Author

Aislinn Keely is a reporter on The Block's policy team holding down the legal beat. She covers court decisions, bankruptcies, regulatory actions and other key moments in the legal sphere, putting them in context for the wider crypto industry. Before The Block, she lent her voice to the NPR affiliate WFUV and helmed Fordham University's student newspaper. Send tips or thoughts on all things policy and legal to akeely@theblock.co or follow her on Twitter for updates @AislinnKeely.