British authorities split on banning sale of crypto investment products

Policy makers in the UK are divided on whether the sale, trading and distribution of cryptocurrency-linked exchange-traded notes (ETNs) and derivatives should be banned when it comes to retail investors. The Regulatory Policy Committee considers that the measure, adopted in 2021, is not justified in the current circumstances.

Britain's main regulator, the Financial Conduct Authority (FCA), imposed the ban in January 2021. Since then, companies can no longer offer cryptocurrency derivative products, such as futures, options, and exchange-traded notes, or ETNs, to retail customers.

General ban was imposed Despite the fact that 97% of the respondents to the FCA inquiry opposing the “disproportionate” ban, with many arguing that retail investors are capable of assessing the risks and value of crypto derivatives.

On January 23, the Regulatory Policy Committee (RPC), a public advisory body sponsored by the government's Department of Business, Energy and Industrial Strategy, submitted its reasons against FCA ban.

Related: UK crypto bill to restrict services from abroad

Using cost-benefit analysis, the RPC assessed the annual losses from the measure at approximately £268.5 million ($333 million). As the RPC states, the FCA did not provide a clear explanation of what specifically would happen in the absence of the ban. It also did not explain the methodology and calculations to estimate the costs and benefits at that time. On that basis, the RPC rates the ban at the “red” level, meaning it is not fit for purpose.

RPC's negative review does not necessarily lead to the direct repeal of the legislation. However, given the committee's links to the Department for Business, Energy and Industrial Strategy, it may mark the different understanding of reasonable regulation by the FCA and the government.

In the past year, the UK financial authorities have made a number of significant efforts to encourage the development of the digital industry. For example, "designated crypto assets" were included in a list of investment transactions that qualify for the Investment Manager Exemption.