UK FCA plans to let consumers buy crypto ETNs, but keeps retail blocked from derivatives

The Financial Conduct Authority (FCA), the UK body overseeing the country’s financial services, is proposing to lift a ban that currently stops retail investors from buying crypto exchange-traded notes (ETNs). However, the regulator wants to maintain its ban on crypto derivatives for retail traders.

Crypto ETNs are debt instruments that aim to mirror the performance of a crypto asset or a crypto index, offering investors another way to gain exposure to the crypto market. In essence, investors lend money to the ETF issuer, who promises to pay returns based on crypto’s price movements.

The FCA announced the ban on the sale of crypto derivatives and crypto ETNs to retail consumers in October 2020. As part of the rule that went into effect in January 2021, firms are prohibited from selling, marketing, or distributing those products to individual investors in the UK.

The FCA stated at the time that crypto-derivatives and ETNs were “ill-suited for retail consumers” due to the high risks of harm, including extreme volatility, lack of reliable valuation methods, susceptibility to market abuse and cybercrime, and poor consumer understanding of crypto assets.

The regulator also noted that there was no legitimate investment need for retail investors to access these products and that the ban was necessary to provide an appropriate level of protection.

In a press release published on June 6, the FCA said it plans to extend access to crypto ETNs beyond professional investors, provided the products are traded on recognized investment exchanges.

Financial promotion rules would require clear risk disclosures to consumers, similar to direct crypto asset investments, the regulator noted.

“This consultation demonstrates our commitment to supporting the growth and competitiveness of the UK’s crypto industry,” said David Geale, executive director of payments and digital finance at the FCA.

“We want to rebalance our approach to risk and lifting the ban would allow people to make the choice on whether such a high-risk investment is right for them, given they could lose all their money,” he added.

The move is part of the FCA’s ongoing efforts to establish a crypto regulatory framework, following its recently published proposals on stablecoins and other regulatory aspects.

The regulator also announced additional proposals to reduce industry burdens, including simplified reporting requirements for funds’ value assessments.

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