UK’s FCA to Lift Restriction on Crypto ETNs for Retailers

The Financial Conduct Authority (FCA), the United Kingdom’s regulatory watchdog, has announced the relaxation of policies for crypto exchange-traded notes (ETNs). Through a recent press release, the body would allow retail investors to access these products on public exchanges, potentially increasing mainstream adoption of digital assets.

FCA Proposal For Crypto ECN

The FCA initiative is part of a larger regulatory effort to enhance market competitiveness and ease operational barriers for financial firms.

Under the proposal, retail investors would be able to purchase crypto ETNs. However, these debt instruments that track digital asset prices must be listed on a recognized exchange and comply with the UK’s financial promotion rules.

The regulatory body noted that existing safeguards, including risk disclosure requirements and restrictions on promotional incentives, will remain in place for crypto ETNs, reflecting the rules for direct digital asset sales.

The trading experience will resemble that of an exchange-traded fund (ETF), featuring exchange-listed trading and intraday liquidity. However, the instrument will be a note, exposing investors to issuer counterparty risk and without direct ownership of the underlying assets.

This way, retail investors would gain access to sterling-denominated crypto ETNs. These include those offered by 21Shares, WisdomTree, and Invesco (including ByteTree’s BOLD bitcoin-and-gold ETN), currently available to professional investors on the London Stock Exchange.

Unlike the U.S., the FCA’s proposal doesn’t include spot crypto ETFs, which directly hold digital assets. Instead, it focuses on ETNs. These would be accessible to retail investors if listed on recognized exchanges and meeting financial promotion rules.

A Regulatory Milestone

The consultation marks a U-turn from the FCA’s 2021 policy and other stricter policies, now proposing to allow retail access to crypto ETNs while maintaining the ban on crypto derivatives, reflecting the regulatory shift towards greater consumer autonomy.

The proposal would extend crypto ETN access to retail customers on FCA-approved venues, such as the London Stock Exchange, if they meet the protection rules. Notably, FCA executive director David Geale stated that the move aims to “rebalance” the regulator’s risk framework, giving retail investors more autonomy to decide whether crypto ETNs align with their risk appetite.