UK FCA allows exchanges to list cryptoasset-backed Exchange Traded Notes
For exchanges wishing to list cETNs, the FCA will evaluate applications individually, focusing on whether they meet the criteria specified in the Listing Rules and ensuring that trading is conducted orderly and with sufficient investor protection. Only professional investors, defined as entities authorized to operate in financial markets, will have access to these market segments.
The Financial Conduct Authority (FCA) has announced its decision not to oppose Recognised Investment Exchanges (RIEs) in their requests to establish a new segment in the UK market specifically for cryptoasset-backed Exchange Traded Notes (cETNs).
This move will allow professional investors, such as authorized investment firms and credit institutions, to engage in cETN transactions. However, stringent controls must be in place to ensure orderly trading and adequate investor protection. All cETNs are required to comply with the UK Listing Regime, including regulations concerning prospectuses and ongoing disclosures.
FCA warns cryptos are highly risky and largely unregulated
The decision comes after a period of observation which provided the FCA, exchanges, and professional investors with more data and insights into cETNs, allowing for a better assessment of their suitability in relation to risk appetite. Nevertheless, the FCA maintains its stance that cETNs and crypto derivatives are not appropriate for retail consumers due to the potential risks involved. Consequently, the existing ban on selling these products to retail consumers will continue.
The FCA emphasizes that cryptoassets are highly risky and largely unregulated, warning that investors should be prepared to lose all their money. It is part of ongoing efforts with domestic and international partners to develop a comprehensive regulatory framework for cryptoassets and establish the UK as a leader in cryptoasset standards.
cETNs for professional investors only
For exchanges wishing to list cETNs, the FCA will evaluate applications individually, focusing on whether they meet the criteria specified in the Listing Rules and ensuring that trading is conducted orderly and with sufficient investor protection. Only professional investors, defined as entities authorized to operate in financial markets, will have access to these market segments.
The FCA’s prohibition on the sale of crypto derivatives and ETNs to retail consumers, introduced in January 2020, remains in effect, underscoring the authority’s commitment to consumer protection and the integrity of the UK’s financial system. The FCA will continue to monitor the situation and adjust its policies as necessary, working closely with the government on the broader regulation of cryptoassets.
This includes new financial promotion rules for crypto firms, effective from 8 October 2023, designed to protect consumers against unfair marketing and to mitigate the risks associated with crypto investment.
LSEG to launch cETNs by Q2 2024
The London Stock Exchange (LSE) already announced its plans to accept applications for launching exchange-traded notes (ETNs) backed by Bitcoin and Ether, providing professional investors with another avenue to invest in the cryptocurrency asset class.
The exchange stated that it would begin accepting applications in the second quarter of 2024, with the exact launch date to be confirmed later. ETNs are debt securities that offer exposure to an underlying asset, and crypto ETNs enable investors to trade securities tracking cryptoassets on-exchange during London trading hours, with their own dedicated trading segments.
The conditions for admission to the LSE for Crypto ETNs include several key criteria outlined in a factsheet published by the exchange. Firstly, the proposed Crypto ETN must be physically backed and have a reliable and publicly available market price or value measure of the underlying Bitcoin or Ethereum assets.
