UK opens door to some cryptoasset exchange-traded products

The Financial Conduct Authority has indicated that it would consider requests to create cryptoasset exchange-traded notes. The move presents an opportunity for UK professional investors to deepen their involvement in the crypto sector but the FCA’s ban on selling this kind of product to retail customers remains in place.

Invitation to exchanges

In a statement the FCA invites recognised investment exchanges to create a UK listed market segment for cryptoasset-backed ETNs. Applications must demonstrate that these products would only be made available to professional investors.

Since 2020 the FCA has banned UK firms from offering or selling crypto derivatives and crypto-ETNs to retail customers.

In a market notice the London Stock Exchange confirms that it will accept applications for the admission of cryptoasset ETNs in Q2 2024. Initially it will only consider proposals that use Bitcoin or Ethereum as the underlying cryptoassets, although it may expand this list in future. 

No change for retail

Earlier this year the US Securities and Exchange Commission approved several Bitcoin exchange-traded funds. These ETFs have been credited with pushing the cryptoasset’s value to record levels, to some extent because they offer retail investors a means of investing in Bitcoin via a familiar structure.

Unlike the SEC’s action, the FCA’s latest move is not expected to widen access to these products for UK retail investors. Existing regulation continues to restrict UK retail customers’ access to structured products that reference cryptoassets and, although the FCA statement suggests that it will keep its prohibition on crypto-ETNs under review, it does not indicate any imminent relaxation in its approach.

Riding the wave

The FCA's new position on these “cETNs” will, however, be welcomed by banks, investment firms and other regulated firms who want to gain broader access to the cryptoasset market. The FCA is also working with the government to develop a future cryptoasset regulatory regime which is expected to further clarify how institutional investors can participate in this market.