Fund managers push back over the FCA clampdown on cryptocurrencies

Darren Sinden

Assets under management in these types of investments have risen 5 fold over the last 12 months to stand at around €2.30 billion today

Managers of a new range of crypto relayed exchange-traded products have begun to push back against the UK‘s regulatory crackdown on cryptocurrencies.

In recent weeks an FCA ban on the marketing and distribution of cryptocurrency derivatives to UK retail clients has taken effect, forcing FX and CFD brokers to write to their clients and inform them that any open positions they have will be set to closing only and that they would be unable to place any new trades on CFDs over instruments such as Bitcoin and Ethereum.

On top of the ban, the FCA took the unprecedented step of issuing a warning to cryptocurrency investors that the should be prepared to lose any and all money that they have in the digital assets.

However, executives at HANetf which we wrote about last week have spoken out about the crackdown. Hector McNeil, Co-founder of the ETF and ETP distributor said that: “The FCA’s decision has basically pushed retail investors from a regulated product on a regulated exchange to the wild west underlying crypto markets”

Mr McNeil said UK clients were being moved from “a regulated environment on to unregulated markets and market infrastructure where abuse, fraud and errors will be significantly increased”

Similar criticism was levied at regulators when they reduced the levels of leverage available in margin trading for both UK and European retail clients.

Whilst there may have been some merit in reducing the levels of gearing on offer in FX and CFD trading. Banning retail customers from trading in CFDs on cryptocurrencies seemed ill-considered.
Precisely because of the security issues associated with the ownership and storage of the underlying cryptocurrencies, Issues that CFD traders can avoid completely.

The regulator also banned UK retail clients from accessing exchange-traded products such as ETPs and ETNs that are linked to cryptocurrencies.

These instruments have seen a massive uplift in interest over the last year and assets under management have risen 5 fold over the last 12 months to stand at around €2.30 billion today.

Also, we recently noted the Swiss SIX exchange now lists some 36 crypto-related ETPs including the HANetf distributed and dual-listed Bitcoin Exchange Traded Cryptocurrency or BTCE. Which has become one of the most actively traded ETFs on Deutsche Borse.

Townsend Lansing who is head of product as Coinshares, which also manages a range of crypto-centric ETPs, took a similar stance over the increased regulation that UK investors now face when he said that: “The FCA’s initiative will do little to hinder digital asset adoption overall, but represents a significant disadvantage for UK investors”

He added that “We believe that although digital assets are indeed innovative, wrapping them into exchange-traded products is a fairly normal extension of the industry’s unique ability to offer exchange-traded access to a diverse set of underlying(instruments)”

The final word on the subject went to Mr McNeil who when asked about the prospects for institutional interest and investment into cryptocurrencies and related assets said “Institutional use will increase, this will also bring better price discovery and stability, and ultimately reduce volatility.

He added that this “However, that will take time and all product providers (will)need to work hard on investor education”.

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