Policy makers in the UK are divided over the sale, marketing and distribution of derivatives and exchange traded notes (ETNs) tied to cryptocurrencies should be banned when it comes to retail investors. The Regulatory Policy Committee believes that the measure, which was adopted in 2021, cannot be applied under the current situation.
The ban, enforced by the UK’s chief regulator, the Financial Conduct Authority (FCA), will come into force in January 2021. From that time, the companies will not be able to offer cryptocurrency derivative products such as futures, options and exchange-traded notes, or ETNs. , for retail customers.
Back then, the blanket ban ignored 97% of respondents to the FCA’s own consultation, which opposed the FCA’s proposed “disproportionate” ban and stated that retail investors can assess the risk and value of crypto derivatives.
On 23 January 2023, the Regulatory Policy Committee (RPC), an advisory public body, sponsored by the government’s Department for Business, Energy and Industrial Strategy, explained its reasons for opposing the FCA ban.
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Using a cost-benefit analysis, the RPC assessed annual losses of approximately $333 million (268.5 million British pounds). According to the Committee, the FCA did not provide a clear explanation of what would have happened in the absence of the ban. It also does not explain the methodology and calculations for estimating 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 according to the review.
A negative review by the RPC does not necessarily result in an immediate reversal of the legislation. However, given the Committee’s relationship with the Department for Business, Energy and Industrial Strategy, it may signal a different understanding of reasonable regulation by the FCA and the government.
Last year, the UK financial authorities made some significant efforts to promote the development of the digital industry. For example, “designated crypto assets” are included in the list of investment transactions that qualify for the Investment Manager Exemption.