Consumer Duty not FSCS will ‘protectʼ retail investors in crypto ETNs, says FCA

Crypto exchange traded notes (cETNs) will not be covered by the UK Financial Services Compensation Scheme (FSCS), according to a statement by the Financial Conduct Authority (FCA) published on August 1.

The UK regulator announced that retail consumers will “soon” have access to cETNs as an authorised financial instrument, following a June consultation paper proposing the lifting of the 2021 ban on the product. Such a reversal is important for the UKʼs growth and innovation, according to the FCA, which explained that the crypto sector has developed since the ban was imposed.

It also cited the 2020 Money Laundering Regulations (MLRs) and the 2023 financial promotions regime as adding to its “strengthened regulatory remit” on the crypto market.

However, the FCA also noted that the Consumer Duty will still apply to firms offering cETNs, including key provisions such as the requirement for products and services to offer fair value, and for firms to test that customers understand what they are buying.

‘Ill-suited’ products

Meanwhile, the sale of crypto-related derivatives and ETNs to retail consumers has been banned in the UK since 2020. According to an FCA statement at the time, they were considered “ill-suited” to retail consumers due to the risk of “harm” they posed.

“Significant price volatility, combined with the inherent difficulties of valuing crypto assets reliably, places retail consumers at a high risk of suffering losses from trading crypto derivatives. We have evidence of this happening on a significant scale,” said FCA executive director of strategy and competition Sheldon Mills.

The FCA also initially banned cETNs for professional investors but reversed its position in March 2024, accepting requests from recognised investment exchanges (RIEs) to lift the ban.

‘Strong desireʼ

According to a July report by the London Stock Exchange (LSE), it has already welcomed eight crypto ETN issuers, with 17 listed ETNs across 34 currencies. Many European issuers also “expressed a strong desire” to explore the UK market, it added.

While it acknowledged the volatility associated with crypto-related financial instruments, the LSE believed that the existing market — such as Bitcoin and Ethereum — has matured in recent years, behaving similarly to traditional assets.

The report also suggested there would be “tremendous growth” in the cETN market, which was “likely to continue for the foreseeable future”.

Crypto Roadmap

The FCA’s proposal to allow cETNs is part of its wider plan, the Crypto Roadmap. Through a series of consultation papers, the regulator is moving towards a more “balanced” approach to digital assets.

It has already consulted on relaxing stablecoin reserve requirements, in two consultation papers published on May 28. By applying the “same risk, same rule” principle, the FCA is looking to introduce a new reserve regime that allows stablecoin to be backed by long-term public bonds, repurchase agreements (repos) and money market funds (MMFs).

According to its Crypto Roadmap, the FCA will be looking at consumer protection regimes in the third quarter of 2025, particularly the conduct and firm standards for regulated activities order (RAO) activities.