UK’s FCA to lift ban on crypto ETNs — here’s what it means

LONDON — The U.K. is set to lift a ban on a key type of crypto debt security in a bid to catch up to the U.S. and other financial hubs as it looks to become a global hub for digital assets.

On Friday, the Financial Conduct Authority, the U.K.’s main regulator for financial services, announced a proposal to reverse its ban on offering crypto exchange-traded notes to retail investors.

Exchange-traded notes are a type of debt instrument that are linked to one or more specified assets — cryptocurrencies, in this case. In essence, they allow investors to gain exposure to digital tokens through the use of a regulated exchange.

Sales of crypto ETNs to retail investors have been prohibited in the U.K. since the FCA put in place a ban in 2019 due to concerns over the potential harms they pose to consumers.

On Friday, however, the FCA said it proposed lifting the ban on crypto ETNs “to support UK growth and competitiveness.” A restriction on crypto derivatives will remain in place, the watchdog added.

“This consultation demonstrates our commitment to supporting the growth and competitiveness of the UK’s crypto industry,” David Geale, executive director of payments and digital assets at the FCA, said in a statement.

“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.”

The development was swiftly praised by crypto firms as a significant moment for the industry in the U.K. Britain is often perceived as falling behind the U.S., European Union and other global players when it comes to digital assets.

Spot crypto exchange-traded funds have been available in the U.S. since the Securities and Exchange Commission approved rule changes to allow the creation of the first bitcoin-linked ETFs early last year.

In April, the U.K. government published draft legislation for the crypto sector with the goal of making the country a “world leader in digital assets.” The FCA is separately working through a detailed roadmap of consultations and discussion papers with a view to implement a regulatory regime for crypto by 2026.

“Until now, the UK has been an outlier on ETNs. We hope this move will improve consumer protections and we will continue to make the case for lifting the ban on retail investors from accessing highly-regulated derivative products,” said Ian Taylor, board advisor to crypto trade body CryptoUK.

Kraken’s U.K. General Manager Bivu Das said that the proposal to approve sales of crypto ETNs to consumers marked a “major milestone for the UK’s crypto ecosystem.”

The FCA is “acknowledging that the market has matured significantly and that outdated restrictions no longer serve their intended purpose,” Das added. “Regulatory moves like this are critical if the UK is to stay competitive in the race to lead in digital assets.”