Politicians in the UK are divided over whether the sale, marketing and distribution of derivatives and exchange-traded notes (ETNs) linked to cryptocurrencies should be banned as far as retail investors are concerned. The Regulatory Policy Committee believes that action taken in 2021 is unwarranted in the current circumstances.
The ban, enacted by the UK’s main regulator, the Financial Conduct Authority (FCA), entered into force in January 2021. Since then, companies could no longer offer cryptocurrency derivative products, such as futures, options and exchange-traded notes or ETNs, to retail customers.
Then the blanket ban ignored by 97% of respondents to the FCA’s own consultation, which opposed the FCA’s proposed “disproportionate” ban, arguing that retail investors are capable of assessing the risks and value of crypto derivatives.
On 23 January 2023, the Regulatory Policy Committee (RPC), an advisory public body, sponsored by the Government’s Department for Business, Energy and Industrial Strategy, will spread out its reasons against the FCA ban.
Using a cost-benefit analysis, the RPC estimated the annual loss from the measure at around $333 million (£268.5 million). As the committee points out, the FCA has not provided a clear explanation of what specifically would happen if the ban did not exist. At the time, it also did not explain the methodology and calculations for estimating the costs and benefits. Based on this, the RPC rates the ban at a “red” level, meaning it is not fit for purpose, according to the review.
A negative review by the RPC does not necessarily lead to outright repeal of the legislation. However, given the committee’s links to the Department for Business, Energy and Industrial Strategy, this may mean that the FCA and the government have different understandings of what appropriate regulation is.
Last year, the UK tax authorities made a significant effort to support the development of the digital industry. For example, “designated crypto-assets” have been included in the list of investment transactions that qualify for Investment Manager Exception.