UK’s FCA Favors A Crypto-Backed ETN Market

UK’s financial watchdog is open to introducing crypto-backed exchange-traded notes (ETN) for professional investors.

However, the regulator maintains that retail investors are prohibited from trading these products.

FCA Okays Creation Of New Crypto Product

In a recent press release, the UK Financial Conduct Authority (FCA) announced its willingness to consider and approve requests from Recognized Investment Exchanges (RIEs), seeking to establish a designated market segment for exchange-traded notes (ETNs) backed by crypto assets.

This development indicates the growing institutional and regulatory interests in cryptocurrency markets. Furthermore, the FCA said these crypto asset-backed products would be exclusively available to professional investors, notably investment firms and credit institutions.

ETNs, categorized as exchange-traded products, are typically issued by banks or asset managers and are designed to mirror the performance of an underlying index or a specific set of assets. Meanwhile, the regulator underscored the importance of implementing robust controls to ensure the integrity of trading activities and provide adequate safeguards for professional investors.

As a result, the FCA added that exchanges facilitating these ETNs must adopt orderly trading, not neglect investor protection, and establish and maintain other effective operational practices.

LSE To List Bitcoin And Ether ETNs

Accordingly, the London Stock Exchange (LSE) has affirmed its intention to entertain applications for Bitcoin (BTC) and Ethereum (ETH) exchange-traded notes during Q2 of 2024. The regulator’s reason for preventing retail investors from trading in ETNs is that crypto asset-backed ETNs and cryptocurrency derivatives are not well-suited for retail consumers’ risk tolerance and financial literacy levels.

Consequently, this prohibition highlights the FCA’s cautious approach to safeguarding the interests of this category of investors. Nevertheless, the regulatory body remains aware of cryptocurrencies’ inherent high-risk nature.

Hence, it advised investors to exercise due diligence and acknowledge the potential risks of investing in these assets.