FCA may allow crypto ETNs for retail traders under new proposal

Retail investors may soon be able to buy crypto ETNs, as the country’s top financial regulator weighs investor protections with innovation.

UK regulators are taking steps to boost growth in the country’s crypto industry. On Friday, June 6, the UK’s Financial Conduct Authority proposed lifting a ban on crypto exchange-traded notes for retail customers. However, these notes will have to be issued by FCA-approved exchanges.

David Geale, executive director of payments and digital finance at the FCA, explained that the agency wants to promote the UK crypto industry while also ensuring investor protections.

“This consultation demonstrates our commitment to supporting the growth and competitiveness of the UK’s crypto industry. We want to rebalance our approach to risk, and lifting the ban would allow people to make the choice on whether such a high-risk investment is right for them, given they could lose all their money,” David Geale, FCA.

To balance risks, the rules on financial promotion will still apply. This means that institutions will have to provide investors with information about the risks involved with these assets. The FCA also explained that its ban on crypto derivatives for retail investors will remain in place.

UK’s FCA moves to clarify rules on crypto

The latest lift on the ETN trading ban for retail traders is part of a broader push to balance investor protection with innovation. On May 2, the FCA proposed banning retail investors from buying crypto assets with debt. Due to the volatility of crypto assets, debt-financed buying could expose investors to significant financial risk, the regulator argued.

Unlike crypto exchange-traded funds, which are backed by the underlying asset, ETNs are unsecured debt notes tied to a specific index. This means they are higher-risk assets than ETFs, as they also expose traders to counterparty risk related to the issuer’s solvency.