There is a lack of consensus among those who make decisions on public policy in the United Kingdom over whether or not retail investors should be barred from purchasing, promoting, or distributing derivatives and exchange-traded notes (ETNs) that are linked to cryptocurrencies.
The Regulatory Policy Committee is of the opinion that the measure, which was implemented in 2021, cannot be justified given the present state of affairs. In January of 2021, the restriction was enforced by the Financial Conduct Authority (FCA), which is the primary regulatory body in the United Kingdom.
Since that time, businesses are not permitted to sell bitcoin derivatives products to retail clients. These products include futures, options, and exchange-traded notes (also known as ETNs).
In spite of the fact that 97% of people who responded to the FCA’s consultation opposed the “disproportionate” prohibition, the FCA went ahead and enacted the blanket ban anyway. Many of the respondents argued that retail investors are capable of evaluating the risks and the value of crypto derivatives.
The Regulatory Policy Committee (RPC), which is an advisory public body that is sponsored by the Department for Business, Energy and Industrial Strategy of the United Kingdom government, presented its arguments against the FCA’s restriction on January 23.
The RPC conducted a cost-benefit analysis and determined that the yearly losses caused by the policy were about 333 million dollars (or 268.5 million British pounds).
According to the RPC, the FCA did not offer a detailed description of the particular events that may take place in the event that the restriction was not in place.
In addition, it failed to provide an explanation of the methodology and calculations used to assess the costs and benefits at the time.
In light of this, the RPC assigns the ban the “red” rating, which indicates that it does not fulfil its intended function.
The unfavourable evaluation provided by the RPC does not automatically result in the immediate repeal of the Act.
In spite of this, given that the committee has connections to the Department of Business, Energy, and Industrial Strategy, it is possible that this will signal a difference in understanding of what constitutes fair regulation between the FCA and the government.
The British financial authorities made a number of substantial measures to encourage the growth of the digital economy last year. These efforts were documented in a report.
For instance, “designated crypto assets” were included in a list of investment transactions that are eligible for the Investment Manager Exemption. This exemption is for investment managers.