UK politicians are divided over whether to ban the sale, marketing and distribution of cryptocurrency-related derivatives and exchange-traded notes (ETNs) to retail investors. The Regulatory Policy Committee believes that the measure, adopted in 2021, is unjustified in the current circumstances.
The UK’s top 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 (ETN) to retail customers.
The blanket ban was imposed despite 97% of respondents to the FCA consultation opposing the “disproportionate” ban, arguing that retail investors are able to assess the risks and value of cryptocurrency 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 – presented its case against the FCA ban.
Using cost-benefit analysis, the PRC estimated the annual losses from the measure to be approximately GBP 268.5 million ($333 million). As the PRC states, the FCA has not provided a clear explanation of what specifically would happen in the absence of the ban. Furthermore, it did not explain the methodology and calculations for estimating costs and benefits at the time. Based on this, the PRC rates the ban at the level of ‘red’, meaning it is not fit for purpose.
The negative review by the PRC does not necessarily lead to the direct reversal of the legislation. However, given the commission’s ties to the Department for Business, Energy and Industrial Strategy, it could mark the FCA’s and the government’s different understanding of reasonable regulation.
In the past year, the British financial authorities have made a number of significant efforts to promote the development of the digital industry. For example, “designated crypto assets” have been included in a list of investment operations that qualify for the investment manager exemption.
