The UK Financial Conduct Authority (FCA) has updated its position on cryptoasset-backed Exchange Traded Notes (ETNs) for professional investors.
The regulator explains that it will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK listed market segment for crypto ETNs. These products would be available for professional investors, such as investment firms and credit institutions authorised or regulated to operate in financial markets only.
Exchanges will need to continue to make sure sufficient controls are in place, so trading is orderly and proper protection is afforded to professional investors. cETNs must meet all the requirements of the UK Listing Regime, for example on prospectuses and on-going disclosure.
With increased insight and data due to a longer period of trading history, the FCA believes exchanges and professional investors should now be able to better establish whether cETNs meet their risk appetite.
The FCA continues to believe cETNs and crypto derivatives are ill-suited for retail consumers 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 regulator continues to remind people that cryptoassets are high risk and largely unregulated. Those who invest should be prepared to lose all their money.
If an RIE creates a new UK listed market segment, the FCA will consider applications on a case-by-case basis for listing cETNs on the Official List. The FCA will review applications for cETNs to be listed on the UK RIEs for professional only market segments. It is for the RIEs to put the professional only market segments in place.
Exchanges must have the appropriate safeguards in place to ensure that the market segment is accessible to professional investors only. Exchanges must also make sure 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 firms such as investment firms credit institutions that must be authorised or regulated to operate in the financial markets. They can also be referred to as ‘professional clients’.