UK allows professional investors to use crypto exchange-traded notes

Britain’s financial watchdog on Monday approved the launch of crypto-backed exchange-traded notes for professional investors, becoming the latest regulator to allow digital asset products while trying to shield retail investors.

Such products – bonds issued by financial institutions that track the performance of underlying assets – will only be available to investment firms and credit institutions approved to operate in financial markets, the Financial Conduct Authority (FCA) said in a statement.

The FCA’s ban on crypto exchange-traded notes (ETNs) and derivatives for retail investors would stay, it said, calling them “ill-suited” because of “the harm they pose”.

The London Stock Exchange said in a separate statement on Monday that it would accept applications for the admission of bitcoin and ether ETNs from the second quarter of this year.

The crypto market has surged in recent months after the U.S. Securities and Exchange Commission (SEC) approved spot bitcoin exchange-traded funds while calling the token a “speculative, volatile asset that’s also used for illicit activity” and urging investor caution.

Bitcoin hit a record above $70,600 on Monday, boosted by the flood of cash into bitcoin ETFs and expectations the U.S. Federal Reserve will soon cut interest rates.

The FCA said that with “greater insight and data from a longer period of trading history,” professional investors can better establish whether crypto ETNs meet their risk appetite. Exchanges must ensure orderly trading and protection for investors, it said.

Repeating warnings from recent years, however, the FCA said crypto was “high risk and largely unregulated,” and that investors could “lose all their money”.

Jake Green, global head of financial regulatory at law firm Ashurst, said the FCA’s position on crypto and retail investors was in a “state of flux”.

The watchdog “clearly does not want to go near” the notion that “retail investors may purchase crypto in the form of a financial instrument which FCA regulates,” he said.