British policymakers disagree on prohibiting crypto investments

Officials in the United Kingdom couldn’t agree on whether or not individual investors should be barred from purchasing cryptocurrency derivatives and exchange-traded notes (ETNs). Although it was passed in 2021, the Regulatory Policy Committee now sees no justification.

The Financial Conduct Authority (FCA), the primary British regulator, issued the ban in December 2020, and it came into effect in January 2021. Since that moment, businesses have been unable to provide retail clients with access to bitcoin derivatives, including futures, options, and exchange-traded notes (ETNs).

At the time, 97% of answers to the FCA’s consultation were disregarded because they disagreed with the FCA’s planned “disproportionate” prohibition and stated that ordinary investors could appraise the risks and value of crypto derivatives.

The Regulatory Policy Committee (RPC), a public advisory body sponsored by the Department for Business, Energy, and Industrial Strategy, presented its case against the FCA’s restriction on January 23, 2023.

The RPC estimated a yearly loss of about $333 million due to the action using a cost-benefit analysis (268.5 million British pounds). According to the Committee, the FCA failed to specify the potential consequences of removing the ban. The article also failed to detail the calculations and methods used to establish an initial cost and benefit analysis. Based on this, the RPC has determined that the ban is inappropriate for its intended use and has assigned it a “red” rating.

A negative RPC review may or may not result in a rollback of the law. It may signal a departure from the FCA’s and the government’s shared understanding of what constitutes fair regulation, given the Committee’s ties to the Department for Business, Energy, and Industrial Strategy.

The British government’s financial authorities made several noteworthy initiatives last year to encourage the growth of the digital sector. Investments in “designated crypto assets,” for instance, are now listed on the approved list of Investment Manager Exemption-eligible deals.