FCA Ends Crypto ETN Ban

The UK’s financial regulator, the Financial Conduct Authority (FCA), has ended a three-year ban on crypto exchange traded notes (ETNs), after announcing that it would no longer object to applications for approval from recognised investment exchanges.

On the same day, the London Stock Exchange (LSE) said it would start accepting applications for bitcoin and ether ETNs in the second quarter of the year with the exact launch date to be confirmed “in due course.” The LSE has also published a crypto ETN factsheet.

The two announcements represent a key milestone for institutional investors looking for exposure to cryptocurrency markets in the UK, following years of grumbling about the regulator’s hardline stance compared with European peers.

On Monday, however, the FCA said it would allow applications for ETNs to go ahead as long as the launch comes from recognised exchanges. “The Financial Conduct Authority will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cryptoasset-backed Exchange Traded Notes (cETNs),” the FCA says.

The change of stance from the FCA comes two months after US regulators green-lighted spot bitcoin ETFs in a regulatory watershed moment. It also only applies to professional investors with the regulator maintaining its ban on retail participation in these markets.

Bitcoin has been printing new all-time highs in recent sessions, pushing above $71,000 on Monday, buoyed by inflows into US ETFs. Blackrock’s bitcoin ETF has hit $10 billion faster than any other US peer in history, demonstrating institutional appetite for the digital token.

The FCA banned the sale of crypto ETNs to retail customers in October 2020, taking a hardline stance compared with other European jurisdictions such as Germany and Switzerland.

In its latest statement, however, the regulator emphasises that exchanges will have to ensure appropriate controls are in place to maintain orderly and proper trading conditions fit for professional investors. It has left the ban in place for retail consumers, noting that it believes that crypto derivatives are “ill-suited” for this client segment due to the harm they pose. “As a result, the ban on the sale of cETNs (and crypto derivatives) to retail consumers remains in place,” the announcement continues.

In the LSE factsheet, meanwhile, it says ETNs are debt securities that provide exposure to an underlying asset class by tracking their performance. Investors will be able to trade the new bitcoin and ether contracts in London trading hours and they will be settled through EUI (Euroclear UK & Ireland) or Euroclear Bank & Clear Stream Bank (ICSD). The new contracts will be physically backed, non-leveraged and the underlying bitcoin or ether will be stored in cold storage or equivalent, including cold staking.