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The FCA has updated its position on cryptoasset Exchange Traded Notes

The Financial Conduct Authority (FCA) has updated its position on cryptoasset Exchange Traded Notes (cETNs) for professional investors. The FCA previously banned the sale of cETNs to retail consumers having concluded they were high-risk and unsuitable for such investors. However, the FCA will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cETNs for professional investors, provided that certain requirements are met. The FCA is continuing to work with the government to develop the UK’s cryptoasset regulatory regime.

The FCA’s decision to allow a market segment for cETNs for professional investors is a sign of the growing interest in cryptoassets among institutional investors. However, the FCA is also cautioning that cETNs are complex products and that professional investors should carefully consider the risks before investing.

Requirements for Creating a UK Listed Market Segment for cETNs for Professional Investors

The FCA has set out a number of requirements that RIEs must meet in order to create a UK listed market segment for cETNs for professional investors. These requirements are designed to protect professional investors and ensure that the market operates in a fair and orderly manner.

• Orderly and Proper Trading

Exchanges will need to continue to make sure sufficient controls are in place so trading is orderly and proper protection is afforded to professional investors. This includes having appropriate systems and procedures in place to prevent market abuse, such as insider dealing and market manipulation.

• Prospectuses and Ongoing Disclosure

cETNs must meet all the requirements of the UK Listing Regime, for example on prospectuses and on-going disclosure. This means that issuers of cETNs will need to provide detailed information about the product, including the risks involved, before it can be admitted to trading on a UK exchange.

• Investor Understanding

RIEs will need to take steps to ensure that professional investors understand the risks of investing in cETNs. This may include providing educational materials and training to investors.

The FCA’s requirements are designed to strike a balance between allowing professional investors to access innovative new products and protecting them from harm. By meeting these requirements, RIEs can create a market segment for cETNs that is fair, orderly, and transparent.

The FCA’s decision to allow a market segment for cETNs for professional investors is a welcome development for the cryptoasset industry. It will provide professional investors with a new way to gain exposure to cryptoassets and could help to attract more investment into the sector. However, it is important to remember that cETNs are complex products and that professional investors should carefully consider the risks before investing.

FCA article 

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