UK Authorities Divided Over Ban on Sale of Crypto Investment Products

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Policymakers in the UK have been divided over whether the sale, marketing and distribution of derivatives and exchange-traded notes (ETNs) linked to cryptocurrencies should be prohibited when are retail investors. The Regulatory Policy Committee believes that the measure, adopted in 2021, is unjustified in the current circumstances.

The ban, enacted by the main UK regulator, the Financial Conduct Authority (FCA), came into force in January 2021. Since then, companies can no longer offer cryptocurrency derivatives such as futures, options and exchange-traded notes, or ETNs, to retail clients.

At the time, the blanket ban ignored 97% of respondents to the FCA’s own consultation, who opposed the FCA’s proposal to ban disproportionately and argued that retail investors are able to assess the risks and value of crypto derivatives.

On January 23, 2023, the Regulatory Policy Committee (RPC), a public advisory body, sponsored by the government’s Department of Business, Energy and Industrial Strategy, set out its reasons against banning FCAs.

Related: UK Crypto Bill to Restrict Services From Overseas

Using the cost-benefit analysis, the RPC put the annual loss of the measure at around $333m (£268.5m). As the Committee points out, CAF has not provided a clear explanation of precisely what would happen in the absence of the ban. Nor did he explain the methodology and calculations for estimating costs and benefits at the time. Based on this, the RPC classifies the ban as red, which means it is not fit for purpose according to the review.

Negative review by RPC does not necessarily lead to direct revocation of 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.

Over the past year, UK financial authorities have made a number of significant efforts to foster the development of the digital industry. For example, designated crypto assets have been included in the investment manager’s list of investment transactions eligible for exemption.

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