The UK Financial Conduct Authority (FCA) has updated its position on cryptocurrency-backed exchange-traded notes (ETNs) for professional investors.
The regulator explains that it will not oppose requests from Recognized Investment Exchanges (RIEs) to set up a UK-listed market for crypto ETNs. These products will be available to professional investors, such as investment firms and credit institutions that are authorized or regulated to operate only in financial markets.
Exchanges should continue to ensure that adequate controls are in place so that trading is orderly and professional investors are adequately protected. cETNs must meet all the requirements of the UK listing regime, for example in relation to prospectuses and continuous disclosure.
With increased knowledge and data due to a longer period of trading history, the FCA believes that exchanges and professional investors should now be better able to determine whether cETNs meet their risk appetite.
The FCA continues to believe that cETNs and crypto derivatives are unsuitable for retail consumers because of the harm they cause. As a result, the ban on selling cETNs (and crypto derivatives) to retail consumers remains in place.
The regulator continues to remind people that cryptocurrencies are high-risk and largely unregulated. Investors should be prepared to lose all their money.
If an RIE establishes a new UK listed market segment, the FCA will consider applications on a case-by-case basis to list cETNs on the Official List. The FCA will review applications for cETNs to be entered into UK RIEs for professional market segments only. It is up to the RIEs to implement the dedicated professional market segments.
Exchanges must have appropriate safeguards in place to ensure that the market segment is accessible only to professional investors. Exchanges must also ensure that they fully understand the nature of the risks of admitting crypto-linked instruments to trading and are satisfied that their admission to trading criteria and trading controls will adequately mitigate those risks.
Professional investors are companies such as investment firms and credit institutions that must be authorized or regulated to operate in the financial markets. They may also be referred to as ‘business customers’.