While much of the world embraces regulated crypto investment products, the UK’s financial watchdog remains stuck in 2021. That’s when the Financial Conduct Authority (FCA) decided to ban retail investors from accessing crypto ETPs and derivatives. Meanwhile, investors across Europe and the US are happily trading these products on regulated exchanges. Talk about being left behind.
The FCA’s reasoning sounds noble enough – protect retail investors from volatility, manipulation, and their own apparent inability to understand risk. But here’s the irony: UK investors aren’t giving up on crypto. They’re just finding riskier ways to get it. Instead of trading regulated products with built-in protections, they’re forced to buy crypto directly or use unregulated offshore exchanges. Nice job, FCA.
The impact on the UK’s financial sector has been predictable. Asset managers can’t launch crypto ETPs locally. Innovation is fleeing to friendlier jurisdictions. The London Stock Exchange watches from the sidelines as crypto ETP trading volumes flow to other markets. The FCA plans to implement changes to allow UK RIE-listed cETNs by the end of 2025. These products will be structured as physically backed debt instruments with cryptocurrency collateral. Many investors are turning to centralized exchanges for their crypto trading needs, despite the additional risks of letting third parties control their private keys.
Even the recent SEC approval of spot bitcoin ETFs in the US highlights how the UK is increasingly out of step with global trends.
The ban has effectively kneecapped the UK’s aspirations to be a digital asset hub. Start-ups and product issuers are setting up shop in continental Europe or the US instead. The broader digital finance ecosystem is struggling to develop, while other markets race ahead with TradFi-DeFi integration.
Britain’s digital finance dreams wither as crypto innovators flee to more welcoming shores, leaving its fintech ambitions in the dust.
Perhaps most frustrating is the FCA’s acknowledgment that the ban hasn’t actually eliminated retail risk-taking – it’s just pushed it outside their regulatory reach. The strong uptake of crypto ETPs in other Western markets shows there’s serious demand for these products.
UK investors want regulated exposure to crypto assets. They’re getting it anyway, just without the protections the FCA claims to care about. Sometimes the best way to protect investors is to give them a safer way to do what they’re already doing.
