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It may look like the Financial Conduct Authority is having its own moment during this global shift toward embracing crypto asset-backed financial products. However, the reality is more nuanced.
Last Monday, the FCA announced it would not object to some bitcoin-backed securities being listed in the UK.
Is this a path for UK retail customers to invest in bitcoin funds? Not really.
It’s an interesting move from the FCA, which has historically taken a tough stance on any crypto asset-backed exchange traded products (ETPs). The FCA implemented a ban in 2021 on the sale of crypto-related derivatives, including ETPs, to retail investors. At the time, the FCA claimed that crypto had no inherent value, was highly volatile, and was associated with financial crime.
Last Monday’s more crypto-positive statement almost certainly reflects mounting pressure from other jurisdictions, which are beginning to take a more pragmatic view of such products. For instance, the SEC in the US has recently allowed spot bitcoin ETFs to be sold to both institutional and retail investors.
Read more: Bitcoin ETF snapshot: Segment’s week net inflows hit record $2.5B
By providing another well-regulated method for investors to invest in bitcoin — as they can already do with other commodities such as gold or oil — the SEC is opening up the market and allowing the space to grow and evolve within a robust regulatory framework. As a result, a myriad of new ETFs are popping up for US investors.
A degree of movement for crypto is also happening in the EU. In Europe, virtually all digital assets ETPs are structured as ETNs, (rather than funds), due to regulation. Although we are unlikely to see products like bitcoins ETFs entering EU markets any time soon, similar products are being permitted for sale to professional investors. EU asset manager Jacobi listed BCOIN, its bitcoin product structured as close as possible to an ETF (and marketed essentially as an ETF), in Amsterdam as of last August.
But does Monday’s statement demonstrate that the FCA is open to reviewing its crypto position? While markets have been quick to seize the announcement as an opportunity, there is reason to be more skeptical.
Read more: After US bitcoin ETFs, the UK fights for retail to have the same freedom
First, the FCA saying it would “not object” to bitcoin-backed securities is not the same as saying it would allow them to be listed. The first test case of an REI actually listing a crypto asset ETN will be crucial, and it will be interesting to see what the FCA does.
Second, the FCA goes on to say in the same statement that “crypto derivatives are ill-suited for retail consumers due to the harm they pose. As a result, the ban on the sale of ETNs […] to retail consumers remains in place.” No move toward the American approach there.
When the FCA’s ban on the sale of crypto derivatives to retail consumers was introduced in 2020, the UK had minimal crypto asset regulation. Since then, the crypto asset ecosystem has changed dramatically, from both a commercial and regulatory perspective. Furthermore, the UK government has repeatedly reiterated its commitment to making the UK a global hub for crypto assets; a position which seems at odds with a blanket prohibition.
Given this backdrop, it makes sense that the FCA reconsider the ban on retail clients. We would welcome additional work on this as a priority, given that timelines for the future broader regulatory regime for crypto assets are unknown and likely to be a multi-year process.