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The policy decision-makers in the United Kingdom got split on whether the sale, marketing, and distribution of derivatives and exchange-traded notes (ETNs) tied with cryptocurrencies should be prohibited when it comes to retail investors. The Regulatory Policy Committee believes the measure, adopted in 2021, to be unjustified under current circumstances. 

The prohibition, enacted by the chief British regulator, the Financial Conduct Authority (FCA), came into force in January 2021. Since that time, the companies could no longer offer cryptocurrency derivatives products such as futures, options and exchange-traded notes, or ETNs, to retail customers.

Back at the time, the blanket ban ignored 97% of respondents to the FCA’s own consultation, who opposed the FCA proposed the “disproportionate” prohibition and argued that retail investors are capable of assessing the risks and the value of crypto derivatives.

On Jan. 23, 2023, the Regulatory Policy Committee (RPC), an advisory public body, sponsored by the government’s Department for Business, Energy and Industrial Strategy, laid out its reasons against the FCA’s prohibition.

Related: UK crypto bill to restrict services from abroad

Using the cost-benefit analysis, the RPC evaluated an annual loss from the measure at roughly $333 million (268.5 million British pounds). As the Committee states, the FCA didn’t provide a clear explanation of what specifically would happen in the absence of the prohibition. It also didn’t explain the methodology and calculations to estimate the costs and benefits back at the time. On that basis, the RPC rates the prohibition at the “red” level, which means it is not fit for purpose according to the review.

The negative review by RPC doesn’t necessarily lead to the direct reversal of legislation. However, given the Committee’s ties to the Department for Business, Energy and Industrial Strategy, it may mark the different understanding of the reasonable regulation by the FCA and the government.

Last year the British financial authorities made a number of significant efforts to foster the development of the digital industry. For example, the “designated crypto assets” were included in the list of investment transactions that qualify for the Investment Manager Exemption.