The UK remains one of the few major global markets that has yet to approve retail access to cryptocurrency exchange-traded products (ETPs).
While countries like Australia, Brazil, Canada, and many states in Continental Europe have embraced these products, the UK has refrained from allowing small investors to purchase them.
More recently, the US even introduced 11 spot Bitcoin (BTC) ETFs on Wall Street, managed by well-known names such as BlackRock, Invesco, and Fidelity, which further highlights the UK’s divergence from other financial centers.
FCA’s 2021 Ban on Crypto Derivatives
Back in 2021, the country’s regulatory body, the Financial Conduct Authority (FCA), banned the sale of cryptocurrency-related “derivatives,” including ETPs, to retail investors.
The FCA’s ban was primarily motivated by concerns around leveraged products like contracts for difference, which offered substantial leverage on the highly volatile Bitcoin.
However, the ban also affected unleveraged products such as plain vanilla ETPs and futures.
Some industry experts have voiced opposition regarding the FCA’s chosen approach.
Specifically, they have criticized the FCA’s rule which allows retail investors to invest in cryptocurrencies directly through crypto exchanges but are prohibited from accessing regulated ETPs listed on established exchanges.
“A UK retail investor can’t invest in a product like ours, a Mifid II [EU regulated] instrument, listed on a regulated exchange and sold through a regulated broker, who would screen you for applicability, depending on your investment objectives and profile,” Bradley Duke, Chief Strategist of London-based ETC Group, said.
“But they can go to a crypto exchange and buy bitcoin without going through any checks and balances, and to me that doesn’t really make sense.”
UK Investors Have Two Options to Get Exposure to Crypto
UK retail investors seeking exposure to cryptocurrencies currently have two options.
They can either purchase digital tokens directly from crypto exchanges, which comes with various challenges such as the need for digital wallets and the risk of theft, or they can invest in shares of companies that track cryptocurrencies, such as exchanges or miners.
However, there is demand among retail investors for ETPs directly investing in cryptocurrencies, as evidenced by numerous requests on investment platforms.
With the recent surge of interest in cryptocurrencies following the US launches of crypto ETPs involving prominent asset managers like BlackRock and Invesco, some believe the FCA will need to reassess its position.
However, some also acknowledged that complete access to all UK retail investors may not be appropriate.
“I don’t agree with general access,” Hector McNeil, co-founder and co-chief executive of London-based HANetf, said, adding that with any more complex product, there should be “some sort of gating”.
“If it’s somebody like me putting 3 per cent of their portfolio in, that should be fine. If it’s my mother wanting to put 100 per cent in because her friend down the social club told her she made loads of money, then I don’t think that’s right.”
Despite arguments favoring regulated ETPs, there are doubts that the FCA will change its stance.
Concerns about the volatility of crypto assets, their links to financial crime, and the challenges in valuing them have been repeatedly raised by the FCA.
