- The FCA will now consider crypto-backed Exchange Traded Notes (cETNs) from registered exchanges, signaling a slight shift in its approach to digital assets
- ETNs are different from ETFs in that there is no underlying ownership of the asset itself
- With only six Recognised Investment Exchanges (RIEs) registered, options for ETN offerings may remain limited.
The UK’s financial regulator, the Financial Conduct Authority (FCA), has said that it will consider crypto-backed Exchange Traded Notes (cETNs) from registered exchanges, marking a slight shift in its treatment of digital assets. ETNs are like loans issued by financial institutions that track the performance of things like indexes or commodities, although there is no asset ownership involved, unlike ETFs. While the sentiment behind the move is positive, the fact that there are currently only six firms registered as Recognised Investment Exchanges (RIEs) suggests that punters won’t exactly be spoilt for choice with ETN offerings.
Retail Still Excluded
The FCA has been clamping down on the presence of unregulated crypto exchanges and certain products in the UK for years, creating a register of crypto firms allowed to operate in the country. This includes the creation of a separate batch of crypto companies, RIEs, which need to uphold stringent controls to ensure orderly trading and provide adequate protection for investors. These controls include compliance with the UK Listing Regime standards, which encompass stringent prospectus requirements and ongoing disclosure obligations.
The decision to allow RIEs to offer crypto ETNs is a sign that the FCA had acknowledged the maturity of the cryptocurrency market, with increased trading history allowing for better risk assessment by exchanges and professional investors alike. However, only professional entities will be allowed to trade cETNs, reflecting the FCA’s continued concern over the potential risks these instruments pose to retail investors.
Hardly Spoilt for Choice
In terms of practicalities, RIEs seeking to list cETNs will need to undergo a thorough application process, with the FCA assessing each case individually. Overall, the FCA’s decision to permit the listing of cETNs for professional investors represents a significant milestone in the evolving landscape of crypto regulation in the UK, signaling a measured approach towards balancing innovation with investor protection.
While there are currently 37 registered companies on the FCA’s sanctioned exchange list, only six are eligible to launch cETNs, meaning there could be quite a wait for those wanting to get a piece of the ETN action.
