UK’s FCA Opens the Door for Institutional Investors to Build Crypto-Backed ETN Market

• The regulator won’t object to the creation of a crypto asset-backed ETN market for professional investors.
• The crypto-backed products are ill-suited to retail investors who remain banned from trading these products, FCA said.
• The London Stock Exchange said it will accept applications for bitcoin and ether-backed ETNs in Q2, 2024.

The U.K.’s Financial Conduct Authority (FCA) said it will not object to requests from Recognised Investment Exchanges (RIEs) to build a listed market segment for crypto asset-backed exchange-traded notes (ETNs), the regulator said in a press release on Monday, a further sign of the increased institutionalization of cryptocurrency markets.

The products would be available to professional investors, including investment firms and credit institutions, the FCA said.
ETNs are a type of exchange-traded product, often issued by a bank or an investment manager, that tracks an underlying index or assets.

Exchanges will be responsible for making sure sufficient controls are in place so that trading is orderly and proper protection is given to professional investors, the regulator said.

The London Stock Exchange confirmed that it will accept applications for bitcoin BTC$106,846.79 and ether ETH$3,893.97 ETNs in the second quarter of this year.

Bitcoin broke past the $71,000 barrier and ether crossed $4,000 on Monday. Meanwhile, the broader CoinDesk 20 index (CD20) rose 0.5%.

Retail investors, however, are still banned from trading these products. The regulator continues to believe that crypto asset-backed ETNs and cryptocurrency derivatives are ill-suited for retail consumers, and because of this, the ban on the sale of crypto ETNs to retail consumers remains.

The FCA reminds people that cryptocurrencies are high-risk and that investors should be prepared to lose all their money.