Crypto assets can be sold to UK retail clients, which is why crypto firms can do business here. Crypto-derivatives and crypto-ETNs (like those products sold by XBT Provider) cannot.
Here are the most relevant updated rules from annex B of PS20/10:
22.6.5 R (1) A firm must not:
(a) sell a cryptoasset derivative or a cryptoasset exchange traded note to a retail client; or
(b) distribute a cryptoasset derivative or a cryptoasset exchange traded note to a retail client; or
(c) market a cryptoasset derivative or a cryptoasset exchange traded note if the marketing is addressed to or disseminated in such a way that it is likely to be received by a retail client.
Here are the relevant definitions from annex A:
cryptoasset derivative - a derivative where the underlying is, or includes, an unregulated transferable cryptoasset or an index or derivative relating to an unregulated transferable cryptoasset.
cryptoasset exchange traded note - a debt security:
(a) which is traded on a trading venue or a market operated by a ROIE;
(b) which features no periodic coupon payments; and
(c) whose return tracks the performance of an unregulated transferable cryptoasset, minus applicable fees, whether featuring delta 1, inverse or leveraged exposure or other exposure to the unregulated transferable cryptoasset being tracked.
A reading of PS20/10 doesn’t seem to suggest a prohibition on Bitcoin ETFs.
- Crypto ETNs, are a debt security, which, by its nature, an ETF is not as these funds simply own the underlying directly.
- Crypto derivatives, which these ETFs are not. They are not a derivative under the FCA handbook’s definition of derivative, nor does it appear to fit the definition of derivative as defined in article 2 (1)(24)(c) of MiFIR or referred to in paragraphs 4 to 10 of Part 1 of Schedule 2 to the Regulated Activities Order.
If there is a mistake I’ve made in reading this, please let me know. However, it seems clear-cut: PS20/10 does not have language in it that prohibits retail clients from purchasing a cryptocurrency ETF.
In not offering these ETFs, Trading212 is forcing consumers who want this exposure to seek it in sub-optimal ways, such as pseudo-leveraged exposure through MSTR, or even the (frankly, irresponsible to offer to retail ISAs) 3x MSTR ETP like 3LMI.
Offering these ETFs appears to be within the letter of the regulation (at least the one cited as the reason), avoids foreseeable harm by allowing investors who want to take on this risk to express a more ‘pure’ opinion without having to take on even further risk in the form of an entire company, and offering these products is a reasonable step towards allowing customers to pursue their financial objectives.
I hope that this stance is reconsidered.