Claiming that crypto exchange-traded notes (ETNs) pose a harm to consumers, the British Financial Conduct Authority (FCA) has proposed to ban them.
Exchange-traded notes provide investors with returns based on a market benchmark similar to a bond.
ETNs are not leveraged so potential losses can easily be understood and managed by retail investors.
Contracts for Differences (CFDs) on the other hand can have very high leverage at times, as much as 500x.
UK regulators have lumped the two together in their latest report stating that intervention is necessary due to the lack of transparency around their valuation.
It’s for your own good
The FCA is essentially stating that consumers are not smart enough to know what they’re investing in.
“Inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them,” the report stated.
“We consider that retail consumers cannot reliably assess the value and risks of derivatives and exchange-traded products that reference certain cryptoassets.”
With the rapid rise in popularity of cryptocurrencies, the government launched the Cryptoassets Taskforce (CATF), consisting of HM Treasury, the FCA, and the Bank of England, in March 2018.
A CATF report was published in October last year which outlined the UK’s policy and regulatory approach to crypto assets and made a number of commitments.
Using the same tired arguments as previous crypto detractors, the task force stated that the nature of the underlying assets have no inherent value and so differ from other assets that have physical uses.
Because it believes cryptocurrencies have no value, the regulatory body has taken an approach to the situation similar to that of China and India by proposing an outright ban.
“We are consulting on banning the sale, marketing and distribution of derivatives (ie contracts for difference, options, and futures) and exchange-traded notes (ETNs) that reference certain types of cryptoassets to all retail consumers by firms in, or from, the UK.”
🚨 @TheFCA is planning to ban access to cryptoasset investment products.
The regulator’s evidence base for such a ban demonstrates a worrying lack of understanding.
Act now to help us stop these concerning proposals: https://t.co/B9yPI3QZDc
— CoinShares 👩🚀 (@CoinSharesCo) September 19, 2019
Crypto firms urge protest
UK investment platform CoinShares has urged customers to lobby the FCA over the proposed regulations as it fears they will be too restrictive for the general crypto industry.
So far the UK has been open to crypto trading and related investment products but this move could turn the tide.
CoinShares, which offers ETNs among its other crypto products, wrote a letter to its clients yesterday stating;
“We believe that the FCA has not provided sufficient evidence to justify the proposed ban. Through its consultation, the regulator makes little attempt to genuinely evidence its claims and instead ‘cherry picks’ data sets in order to illustrate its perception of crypto assets, ETNs and the perceived harm the FCA believes these products cause.”
The regulatory body specifically targeted two CoinShares products, namely its Bitcoin and Etheruem ETNs.
The regular crypto trading market will not be affected but ETNs are regulated and securities and brokers can potentially offer them in stocks or pensions portfolios.
The FCA has jurisdiction over these types of products, though not the crypto assets or exchanges themselves.