UK to allow wider sale of crypto exchange-traded products

The Financial Conduct Authority has suggested opening up access some exchange-traded cryptoasset products for retail customers. Citing changes to the rules that apply to cryptoasset promotions, the FCA says it is appropriate to lift the ban that currently applies to these products. Restrictions continue to apply to other structured products, such as cryptoasset derivatives.

Relaxing the prohibition on crypto ETNs for retail

In 2020 the FCA chose to ban the sale, marketing and distribution to retail customers of derivatives and exchange traded notes referencing cryptoassets. In a consultation, the FCA now proposes removing crypto ETNs from the prohibition. The FCA notes that cryptoasset markets have continued to evolve and that it wants to create the right environment for UK firms to grow and innovate.

Last year the FCA said it would not object to UK recognised investment exchanges making crypto ETNs available, provided they only did so for professional investors (see: UK opens door to some cryptoasset exchange-traded products). It now says those products could be made available to retail customers. Firms will need to have the appropriate licence to offer these products and comply with applicable requirements.

Compliance requirements for crypto ETNs

Firms offering these products would need to comply with the FCA’s conduct of business rules. Given that crypto ETNs would be classified as high-risk investments, these rules include stringent requirements on how they are marketed to customers. The FCA proposes a bespoke risk summary for crypto ETNs which firms will need to give to customers.

Firms will also need to comply with the Consumer Duty which requires firms to act to deliver good outcomes for retail consumers.

Next steps

The FCA plans to finalise the changes as soon as possible and implement them 8 weeks later. The changes do not impact other types of product under the ban, including derivatives that reference cryptoassets and crypto ETNs that are not traded on UK recognised investment exchanges.