The UK FCA approves crypto investment products, but there’s a catch.
Crypto industry figures have welcomed news that the UK's main financial regulator is making it easier to list crypto investment products.
On March 11, the Financial Conduct Authority (FCA) announced that it will allow professional investors to trade crypto exchange-traded notes (ETNs) created by recognized investment exchanges (RIEs).
However, restrictions on retail investor participation remain, making the FCA's announcement only a partial victory for wider crypto adoption.
Regulatory conditions in Europe prohibit offering an exchange-traded fund (ETF) for an asset such as Bitcoin (BTC) or Ether (ETH). This makes ETNs a popular exchange-traded fund (ETP) in which financial rules in the EU and the UK will be broadly compliant despite Brexit.
With the green light from the FCA, British traditional finance and UK traders will soon have easy access to crypto-linked financial products. Given that the journey comes with conditions, it is perhaps not surprising that the warnings are heeded.
Natalia Latka, director of policy at blockchain analytics firm Merck Science, told Cointelegraph, “The FCA's decision is to allow accredited investment exchanges to list cryptocurrencies. [ETNs] It is a significant step forward. Despite the ban, this move not only allows cryptocurrency-related products to merge in an unregulated environment, but also narrows the gap between the crypto sector and the traditional financial industry.
Latka also observed that retail investors were left out.
“Despite ambitions to become a crypto hub, the UK's approach shows significant reluctance among retail investors to embrace the rapidly growing demand for crypto assets,” Latka said.
Cointelegraph spoke with George McDonough, co-founder and co-director of KR1, a European digital asset investment company. McDonough applauded the move, but said the market needed to be more accessible.
“The news that the FCA will not object to the requests [RIEs] Support for crypto assets to create a UK listed market segment [ETNs] The UK regulatory environment is a move in the right direction for crypto,” McDonough said.
McDonough also focused on inclusion, stating that more companies should set up in the UK markets.
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We want the UK Government, other policy makers and the industry to do more around the UK listing system, allowing more companies to join the London Stock Exchange's main market and its smaller market to achieve its goal. To be a truly global hub for the crypto industry.
Whichever way you slice it, the conclusion is broadly the same; If the UK is serious about its ambitions for a nebulous crypto hub, it needs to do more to rapidly expand participation.
The dream of a crypto hub
It's been a while since UK Prime Minister Rishi Sunak announced his plans to prioritize financial technology in Britain. In the year In July 2021, as Chancellor of the Exchequer, Sunak pledged to “implement clean financial services reforms” over the next few years.
In the year By April 2022, Sunak said: “My aim is to make the UK a global hub for crypto asset technology.”
We are working to make the UK a global hub for cryptoassets. We want to see tomorrow's businesses and the jobs they create here in the UK.
Today @JohnGlenUK sets out how we are promoting crypto investment and technology in the UK markets. https://t.co/MdZ5IOLZtH
— Rishi Sunak (@RishiSunak) April 4, 2022
Despite these ambitions, the FCA is incredibly cautious about the industry, and measurable progress is hard to come by. In these circumstances, even a small positive step in the right direction feels like a cause for celebration.
In a statement to Cointelegraph, a spokesperson for the UK-based trade association Crypto UK said: “We advocate for this kind of change, based on consistent and level-setting support for proportionate and measured regulation. A field for all kinds of inventions.
“With that in mind, we will continue to reassess the restrictions on access to appropriate financial investments for retail investors,” the spokesperson said. “While we fully support strong investor protection, we would like to highlight concerns about whether these restrictions are consistent with policy for similar investments that do not include equity and crypto assets.”
Given the UK's goal of becoming a crypto asset hub, the FCA may want to make it a special case for the industry, but only if the initial assumptions are broad enough to benefit it. Rather, the opposite is true.
A long standing position
On October 6, 2020, the FCA established its ultra-cautious stance towards crypto. The body laid down five reasons for its decision:
The nature of the underlying assets, i.e., they have no reliable basis for valuation. Market abuse in the secondary market and the prevalence of financial crimes (e.g. cyber theft). High volatility in crypto asset price movements. Lack of legitimate investment interest to invest in.
According to CoinMarketCap, on October 6, 2020 — the day the FCA excluded retail investors from the sale of cryptocurrencies such as ETNs — Bitcoin's price was around $10,000. Ether is valued at around $350. At the time of writing, the price of Bitcoin was $67,139, while Ether was $3,648.
Given BTC and ETH's price movements at the time, Cointelegraph asked the FCA whether it would be willing to reconsider its ETN ban for retail investors.
An FCA spokesperson said, “The FCA's ban on the supply of cETNs [small c for crypto] Or will crypto derivatives remain in place for retail consumers as we see significant damage to the crypto market.
As for whether this could change in the near future, he said: “The FCA has already announced that it will continue to review its stance on CETNs.
Naturally, industry insiders are hoping that the “under review” situation will lead to some meaningful change as soon as possible.
Inconsistencies and restrictions
In the United States, spot bitcoin ETFs were approved after considerable industry, legal, and political pressure. In comparison, the road to UK ETNs looks relatively painless, although work still needs to be done to ensure greater accessibility.
As Latka points out, “Gary Gensler, SEC [U.S. Securities and Exchange Commission] Chair, he emphasized that [ETF] The endorsement should not be misinterpreted as an official endorsement of Bitcoin. This difference is important. It is plausible that the FCA in the UK has been influenced by the concern that allowing some crypto-referenced products may inadvertently signal that the underlying crypto assets themselves are regulated, despite their status as unregulated.
Recently, Elizabeth Warren's crypto bill drew criticism and sparked an election challenge
But while the FCA is motivated by good intentions, Latka believes its stance could ultimately harm the public it is meant to protect.
Latka says, “The FCA's ban could lead investors to the shadow of unregulated exchanges, increasing their exposure. […] I believe that the way to protect these investors should not be on direct prohibitions, but on the adoption of general rules that allow safe exposure to this asset class.
As CryptoUK puts it, there is still a need for “more public and private sector collaboration with local and international policy makers.”
From an industry insider's perspective, FCA policy is a work in progress.
