The UK Regulator Unlocks New Crypto Product but Only for Select Few

The UK's market regulator will now permit certain authorized exchanges in the UK to create special market segments where specific types of investment crypto products can be bought and sold. However, these market segments will only be accessible to professional investors, such as investment firms and banks that are licensed to operate in financial markets.

FCA Updates Stance on Cryptoasset ETNs for Professionals

The Financial Conduct Authority (FCA) has updated its position on cryptoasset-backed Exchange Traded Notes (cETNs) for professional investors, allowing Recognised Investment Exchanges (RIEs) to establish dedicated UK-listed market segments for these products.

RIEs will be required to ensure that adequate controls are in place to maintain orderly trading and provide proper protection for professional investors. Additionally, cETNs must comply with all requirements of the UK Listing Regime, including a prospectus and ongoing disclosure obligations.

The FCA's decision is based on the belief that exchanges and professional investors should now be better equipped to assess whether cETNs align with their risk appetite, given the increased insight and data available due to a longer period of trading history.

The move comes a week after the FCA approved Portofino Technologies to offer crypto services in the UK. The Switzerland-based market-making liquidity provider will now be able to engage with major banks and trading platforms interested in the crypto market.

Retailers Cannot Use cETNs

However, the ban on the sale of cETNs and crypto derivatives to retail consumers remains in effect, as the FCA continues to consider these products unsuitable for retail consumers due to the potential harm they pose.

The FCA believes that professional investors are better equipped to understand and manage the risks associated with these products, given their experience and resources.

"cETNs and crypto derivatives are ill-suited for retail consumers due to the harm they pose," the regulator commented in a press release. "As a result, the ban on the sale of cETNs (and crypto derivatives) to retail consumers remains in place."

The FCA emphasizes that cryptoassets are high-risk and largely unregulated, and those who invest should be prepared to lose all their money.

FCA Regulates and Intensifies Efforts against Financial Fraud

In February, the UK's FCA disclosed its annual report on fraud and financial crime, underscoring the regulator's dedication to combating scams that target consumers. The FCA achieved a new milestone in 2023 by issuing 2,286 scam alerts through its public Warning List, an increase of 21% compared to the 1,882 warnings released in 2022.

Additionally, from January to October 2023, the FCA withdrew the licenses of 1,266 companies for failing to meet its authorization standards, doubling the number from the previous year. Companies that do not adhere to these criteria are prohibited from operating in the regulated financial sector.