The UK financial regulator approves crypto-backed Exchange-Traded Notes (ETNs)

The Financial Conduct Authority (FCA) has opened the door for recognized investment exchanges to propose the creation of a market segment dedicated to cryptocurrency-backed Exchange Traded Notes (cETNs). As per the Journal of Banking and Finance, an ETN typically takes the form of an exchange-traded, unsecured debt security linked to a financial index.

The FCA specified that these products will exclusively cater to professional investors authorized or regulated to engage in financial markets, such as investment firms or credit institutions. The existing prohibition on selling these products to retail consumers will persist, as the FCA maintains that crypto derivatives remain unsuitable for this market due to their associated risks.

The financial watchdog emphasized the importance of exchanges implementing robust controls to ensure orderly trading and provide protection for professional investors. The FCA expressed confidence that, with an extended trading history offering increased insight and data, exchanges and professional investors should now be better equipped to assess whether cETNs align with their risk appetite.

This move aligns with the FCA’s ongoing collaboration with the government and industry to formulate crypto regulation in the UK. In a development at the close of the previous year, the National Audit Office (NAO) criticized the FCA for a delay in compelling crypto asset firms to comply with Anti-Money Laundering (AML) regulations.