The UK’s Financial Conduct Authority (FCA) has announced a significant shift in its regulatory stance, permitting retail investors to engage in trading crypto exchange-traded notes (cETNs) on approved exchanges starting from October 8. This move marks the end of a three-and-a-half-year ban that was instated in January 2021 due to concerns surrounding the volatility of the crypto markets and the perceived lack of a genuine investment necessity for retail investors.
### FCA’s New Regulatory Approach
The FCA’s decision aligns with a growing international trend towards providing regulated access to cryptocurrency markets. For instance, the US Securities and Exchange Commission (SEC) recently approved in-kind redemptions and spot crypto exchange-traded products (ETPs).
However, the FCA has issued a cautionary note regarding cETNs, highlighting that they are unsecured debt instruments and do not benefit from the Financial Services Compensation Scheme (FSCS) protection. As such, investors are advised to be mindful of the inherent risks involved.
### Understanding Crypto ETNs
Crypto ETNs are similar to crypto exchange-traded funds (ETFs) in that they both offer exposure to cryptocurrencies and can be traded on exchanges. However, the core difference lies in their structure: cETNs are effectively unsecured debt issued by financial institutions, which means investors do not own the underlying cryptocurrency but instead gain exposure to its price movements through the note.
The return on investment is reliant on the issuer’s credibility, emphasising the importance of choosing well-capitalised and reputable institutions for these investments. The FCA firmly underscores that cETNs are not covered by the Financial Services Compensation Scheme, leaving investors without a safety net should the issuer encounter financial difficulties.
### Strict Compliance Requirements
To qualify for trading, cETNs must be listed on FCA-approved exchanges within the UK. Moreover, they must adhere to stringent marketing and disclosure regulations as well as the Consumer Duty rules. This ensures that investors receive adequate information and are able to make informed decisions regarding their investments.
It’s important to note that, although cETNs are making a return, the FCA has maintained its prohibition on retail trading of crypto derivatives such as futures, options, and perpetual contracts. This ban remains steadfast despite a substantial increase in market activity, recently reported at over US$20.2 trillion (approximately AU$31.2 trillion) in volume for the second quarter of 2025.
### Conclusion
The reopening of trading in crypto ETNs represents a notable step forward in the regulatory landscape for cryptocurrency in the UK. While the FCA’s move expands access for retail investors, it also comes with a clear message: the risks of investing in such instruments must be carefully considered, and potential investors are advised to conduct thorough research and choose reputable issuers. The ongoing prohibition on derivatives highlights the FCA’s cautious approach in navigating the complexities and risks of the cryptocurrency market.
As the landscape evolves, stakeholders will be keen to observe how these changes impact the wider financial ecosystem and investor sentiment towards cryptocurrencies in the UK.
