FCA to allow retail investors to trade crypto exchange traded notes
The Financial Conduct Authority will lift the ban on cryptocurrency exchange-traded notes (ETNs) from October, as part of the latest move to allow investors to buy and trade crypto.
ETNs are similar to exchange traded funds (ETFs), which many investors will be familiar with. ETFs pool investors' cash in a fund that is listed on the stock market, and generally track the price of a certain index of assets, like the FTSE 100.
ETNs also try to track an index, but they are debt instruments that promise to replicate the index's performance.
Currently, investors can hold crypto direct with platforms rather than funds, but it is unregulated.
The latest move marks a significant loosening of rules from the FCA, which banned the sale of bitcoin and other crypto ETNs to retail investors alongside crypto derivatives in 2019.
At the time, the watchdog said bitcoin and other crypto assets had 'no reliable basis for valuation', were vulnerable to market abuse, and showed 'extreme volatility'.
David Geale, executive director of payments and digital finance at the FCA, said: 'Since we restricted retail access to cETNs, the market has evolved, and products have become more mainstream and better understood. In light of this, we're providing consumers with more choice, while ensuring there are protections in place.
This should mean people get the information they need to assess whether the level of risk is right for them.'
The FCA overturned the ban on crypto ETN sales to professional investors last year, but opened a consultation for retail investors, noting similar products are already available in other products.
While investors will be able to trade ETNs, they won't be covered by the Financial Services Compensation Scheme (FSCS), so they will need to be aware of the risks.
John Dobson, Head of Investment Solutions at interactive investor said: 'Digital assets continue to grow in popularity and are increasingly seen as a part of the financial lives of consumers.
'In light of the FCA proposing to lift the ban on crypto ETNs (exchange traded notes) for retail investors, we welcome clear regulation in the sector – which will ultimately offer more protection to consumers.
'However, it's imperative that retail investors do their research and understand the risks before allocating any part of their portfolio to digital assets.'
David Belle, CEO of Fink Money said it was a 'great start' from the regulator.
'While not as advanced as US regulators, opening the door to permitting the best risk adjusted return asset of the last 15 years to retail investors is a good thing.
'We have a very engaged crypto population and while on one hand regulators seem quite punitive towards the asset, perhaps this is laying some good ground work to understanding Bitcoin better and what investors are demanding.'
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