The policy decision-makers in the United Kingdom are divided on whether the sale, marketing, and distribution of derivatives and exchange-traded notes (ETNs) tied with cryptocurrencies should be prohibited when it comes to retail investors. The Regulatory Policy Committee believes the measure, adopted in 2021, is unjustified under the current circumstances.
The chief British regulator, the Financial Conduct Authority (FCA), imposed the prohibition in January 2021. Since then, companies can no longer offer cryptocurrency derivatives products such as futures, options and exchange-traded notes, or ETNs, to retail customers.
The blanket ban was imposed despite 97% of respondents to the FCA’s consultation opposing the “disproportionate” prohibition, with many arguing that retail investors are capable of assessing the risks and the value of crypto derivatives.
On Jan. 23, the Regulatory Policy Committee (RPC) — an advisory public body sponsored by the government’s Department for Business, Energy and Industrial Strategy — laid out its reasons against FCA’s prohibition.
Using the cost-benefit analysis, the RPC evaluated annual losses from the measure at roughly 268.5 million British pounds ($333 million). As the RPC states, the FCA didn’t provide a clear explanation of what specifically would happen in the absence of the prohibition. It also didn’t explain the methodology and calculations to estimate the costs and benefits back at the time. On that basis, the RPC rates the prohibition at the “red” level, which means it is not fit for purpose,.
The negative review by RPC doesn’t necessarily lead to the direct reversal of legislation. However, given the committee’s ties to the Department for Business, Energy and Industrial Strategy, it may mark the different understanding of the reasonable regulation by the FCA and the government.
Last year the British financial authorities made a number of significant efforts to foster the development of the digital industry. For example, “designated crypto assets” were included in a list of investment transactions that qualify for the Investment Manager Exemption.