Is FCA Considering to Ban Crypto Assets for Retail Investors?
The Financial Conduct Authority (FCA) implemented a ban on the sale of crypto investment products to retail investors in January 2021. This ban was originally enforced to address the concerns associated with crypto assets, including volatility, susceptibility to market abuse, and the inability of retail investors to assess such risks.
However, the global regulatory landscape has changed significantly since the ban came into force. In the years since, both the United States and Hong Kong launched crypto exchange-traded funds (EFTs) that were accessible to institutional and retail investors. The European Economic Area has also allowed crypto exchange-traded products (ETPs) without a ban on retail investors.
The UK’s ban seems outdated and detrimental to the possibility of the country becoming an international crypto hub.
The FCA has already made some strides by allowing the listing of Bitcoin (BTC) and Ethereum (ETH) ETPs, but these remain inaccessible to retail investors. As a result, UK-based investors seeking access to crypto markets often have to purchase unregulated crypto assets, directly from exchanges.
Globally, the crypto market is booming with Bitcoin remaining perhaps the best crypto to buy right now, although there are several other new and promising coins that are also growing in popularity every day. Worldwide, cryptocurrencies are used for various transactions, from travelling to retail shopping, and property investments.
Online casinos that aren’t part of Gamstop also accept and pay out winnings in cryptocurrency, allowing players to diversify their income streams (however local casinos based in the UK generally don’t accept crypto payments yet). This demonstrates how the use of crypto (both regulated and regulated), is growing across various sectors.
The FCA’s reasoning behind the January 2021 ban centred around the lack of value in crypto assets, the higher risk of financial crimes, price volatility, and the perceived inability of consumers to understand the products. Yet, the crypto market has matured in the past three years, and the FCA should re-evaluate the current market to see if their previous conclusions would change.
The logic behind the FCA’s conclusions was also always slightly flawed. The risks cited applied to the crypto assets themselves - and these assets weren’t banned, just the ability of retail investors to access them. The FCA instead took on the role of issuing warnings about the risks associated with crypto assets.
Regulatory changes since 2021 have given the FCA more powers to regulate crypto assets. The FCA can set requirements around the promotion or sale of these products to customers - including retail customers. More regulatory changes will allow the crypto assets to be treated as specified investments. A market abuse regime will also be introduced.
In this context, the existing ban seems outdated. The FCA has created an alternative method to regulate the retail sale of crypto assets, and regulatory changes are addressing the concerns initially raised by the FCA that resulted in the ban.
Considering this, it is time for the FCA to re-evaluate the current situation and the ban. The work done by the FCA shows that there are alternative regulatory approaches that can implement safeguards and controls, without outright banning retail investment. Reconsidering the ban will ensure that products with similar risks will be regulated in a more consistent manner.
