FCA lifts objections to cryptoasset-backed Exchange Traded Notes (cETNs)

The Financial Conduct Authority (FCA) in the UK has taken a more open stance toward cryptocurrencies, specifically bitcoin and ethereum, by allowing trading in crypto-linked products on the London Stock Exchange. The FCA announced that it would not object to requests to create platforms for trading in crypto-backed Exchange Traded Notes (ETNs).

The London Stock Exchange subsequently revealed that it would accept applications for the admission of crypto ETNs based on bitcoin and ethereum in the second quarter of the year.

While the FCA's decision aligns the UK with some European counterparts, it comes with certain restrictions. Crypto ETNs, which are essentially bets on cryptocurrency movements and will be available only to professional investors such as investment banks and asset managers.

Ordinary retail investors will not have access to these products due to the perceived harm they pose. However, it remains unclear whether savers might indirectly be exposed through pension funds or other investments and something that will need further clarficiation.

The FCA has consistently cautioned about the risks associated with investing in cryptocurrencies, emphasising that those who invest should be prepared to lose all their money. The regulator acknowledges "increased insight and data," suggesting that exchanges and professional investors should be better equipped to assess whether crypto-asset exchange traded notes (cETNs) align with their risk appetite.

This move by the FCA brings the UK closer to other jurisdictions such as in Europe, with more lenient regulations on cryptocurrency products. In contrast, the Bank of England has expressed concerns about the lack of intrinsic value in cryptocurrencies, warning of potential financial stability risks if the crypto market continues to grow.

The decision follows a trend in global regulatory shifts, with the US Securities and Exchange Commission (SEC) authorising bitcoin exchange-traded funds (ETFs) to provide retail investors exposure to the cryptocurrency. Unlike ETFs, ETNs do not own the assets they are based on; instead, they are debt-based instruments, similar to bonds, delivering a return to investors based on the performance of the underlying asset when they mature.

However, the FCA's statement may not represent as much of a softening of its stance to cryptocurrencies as investible assets, as initially supposed. The FCA's decision could also be seen as what could be described as a luke warm approach, given that the regulator is still opposed to providing retail investors with access to such products, unlike the SEC's approach to ETFs.

(Source: This is Money)