UK lifts crypto ETN ban, gives retail investors the green light

The UK government has lifted its earlier ban on crypto exchange-traded notes (ETNs) because it believes the market has matured and people now have a heightened awareness of crypto products. 

In a report dated Wednesday, October 8, the Financial Conduct Authority (FCA) clarified that retail investors can now purchase crypto ETNs via FCA-approved exchanges in the UK.

Crypto ETNs are debt instruments that enable crypto investors to engage with a cryptocurrency without directly owning it. These products are traded like other securities with the actual cryptocurrency safely stored by regulated custodians.

UK adopts a positive outlook towards the crypto industry 

FCA executive director for payments and digital finance, and managing director of the Payment Systems Regulator (PSR), David Geale, noted that since implementing a ban on retail access to crypto ETNs, the market has undergone a transformation, and these products have become more widely understood and accepted.

Therefore, Geale expressed that it is time to give customers more choices, ensuring that consumer protection guidelines are in place to support them. The initial ban on crypto ETNs was effectively imposed in January 2021, when the FCA raised concerns about the risks associated with crypto products, arguing that they could harm retail consumers. They also highlighted that crypto ETNs lacked a real demand for investment at that time.

Regarding the FCA’s recent decision, several crypto analysts have acknowledged the government’s new positive outlook towards the crypto ecosystem, as it has gradually adopted cryptocurrency over the past few years. 

Following this shift in attitude, crypto investors are looking forward to a new, favorable set of guidelines in the industry. This takes place after a change of administration in July.

Despite lifting the ban on crypto ETNs, the FCA has announced that it will maintain its ban on retail access to cryptoasset derivatives. It has also stated that it will continue to supervise and reassess its stance on risky investments closely.

New report points out preference for crypto ETNs in investment

Apart from lifting the ban on crypto ETNs, the UK government has also released a policy statement on how these crypto products would be taxed when held in particular tax-efficient investment accounts.

As for October 8, the government will allow crypto ETNs to be added to registered pension schemes. Afterwards, at the beginning of April next year, they will grant access to Stocks & Shares Individual Savings Accounts. This means that individuals in the country will have more tax-friendly investing options for these products.

In a statement, the government highlighted that it is supporting the growing cryptoasset industry in the UK and developing clear regulations to encourage individuals to explore innovation while adhering to consumer protection guidelines.

With these strategies in place, the IG Group has released reports forecasting a 20% increase in the UK crypto market following the reintroduction of crypto ETNs. 

To arrive at this prediction, the company conducted thorough research and noticed that 30% of adults in the UK prefer investing in crypto through ETNs. According to their argument, the main reason behind this is the sense of safety and regulatory oversight these products offer.

This demonstrates a significant potential increase from the current crypto ownership levels of 12%, according to the FCA’s latest study, and 25% according to IG’s new report.

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