As the U.K. works toward crafting a regulatory regime for the crypto sector, the Financial Conduct Authority (FCA) is proposing to drop its ban on exchange-traded notes (ETNs) that invest in crypto assets.
The regulator launched a consultation today on allowing crypto ETNs to be sold to retail investors, provided that they are traded on a regulated exchange. The FCA banned the products back in 2021, citing the risks to retail investors.
Since then, the FCA has strengthened the money laundering controls over crypto, and in March 2024, it also allowed regulated exchanges to begin listing crypto ETNs for professional investors.
In the meantime, retail investors continue to have access to unregulated, high-risk spot crypto markets, leveraged exchange-traded products and other crypto proxy investments, which aren’t subject to any regulatory oversight, the regulator noted.
Now, following a review of the ban on retail crypto ETNs, the FCA is prepared to consider lifting the ban, “to ensure greater consistency in the regulatory treatment across products and reflect the changing market landscape and regulatory framework…”
Additionally, the products would be subject to the rules governing financial promotions, which require the provision of risk disclosure to investors and set guardrails on sales incentives.
While the FCA is proposing to allow crypto ETNs to be sold, it is also planning to keep its ban on crypto derivatives for retail investors — at least for the time being.
“This consultation demonstrates our commitment to supporting the growth and competitiveness of the U.K.’s crypto industry,” said David Geale, executive director of payments and digital finance at the FCA, in a release.
“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 proposal is out for a four-week consultation.