The Financial Conduct Authority (FCA) has recently updated its stance regarding the listing of cryptoasset-backed Exchange Traded Notes (cETNs) for professional investors on Recognised Investment Exchanges (RIEs). The FCA has indicated it will not oppose RIEs wishing to establish a UK market segment specifically for cETNs, targeting professional investors such as authorised investment firms and credit institutions that operate within financial markets.
UK’s FCA Issues an Update About Its Stand on Crypto Asset Notes
RIEs are expected to maintain rigorous controls to ensure that trading remains orderly and that professional investors are adequately protected. cETNs must adhere to the comprehensive requirements set by the UK Listing Regime, including those related to prospectuses and continuous disclosure obligations.
The FCA notes that with the accumulation of more data and a longer trading history, exchanges and professional investors are better positioned to evaluate whether cETNs align with their risk tolerance.
However, the FCA maintains its position that cETNs and crypto derivatives are not suitable for retail consumers, citing significant risks. Consequently, the prohibition on selling cETNs and crypto derivatives to retail consumers continues to be enforced.
The FCA also reiterates the high-risk nature of cryptoassets, which remain largely unregulated, warning investors of the potential to lose their entire investment.
In its effort to shape and lead the development of cryptoasset regulations domestically and internationally, the FCA is actively collaborating with the government, international partners, and the industry.
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The FCA will evaluate applications for cETNs to be listed on the Official List individually, provided an RIE introduces a new UK-listed market segment. Applications for cETNs aiming for listing on professional-only market segments of UK RIEs will be reviewed. The responsibility to establish these professional-only segments lies with the RIEs.
The FCA’s assessment of applications will consider whether there’s a regulated market for the cETN, based on the criteria in the Listing Rules and ensure that RIEs meet the necessary control requirements to protect investors and maintain orderly trading.
Exchanges are tasked with implementing adequate measures to limit market access to professional investors and thoroughly mitigate the risks of listing crypto-linked instruments through stringent admission and trading control measures.
Professional investors, defined as authorised or regulated firms like investment firms and credit institutions, are regarded as ‘professional clients’. The FCA’s ban, introduced in January 2020, on selling crypto derivatives and ETNs referencing specific cryptoassets to UK retail consumers remains effective, underscoring the FCA’s commitment to consumer protection and financial system integrity.
