What's your pathway?

 

Note: This post was originally published on LinkedIn in Oct 2023

Product and Jurisdiction
Earlier this week the FT stated that the UK might be falling behind other jurisdictions on its crypto stance.
(https://lnkd.in/d2Uw6bVp)

But before reaching any conclusion, what is the context of this headline?
What it most certainly says is that the crypto space is evolving, both in terms of i) product (e.g. the 11 spot BTC ETFs approved by the SEC) and ii) participants (Blackrock, Fidelity, Invesco which are all familiar names).
(https://lnkd.in/d2UtUjpA)

This recognition of the changing status of digital assets is a global phenomenon. As Hong Kong’s SFC so elegantly states: “A broader range and a larger number of investment products are now available, and provide both retail and professional investors with exposure to virtual assets.”
(https://lnkd.in/d8tUmJsA)

The HK SFC circular goes on to highlight why the global regulatory landscape remains uneven. The entities people end up dealing with are i) at worst unregulated or ii) only regulated for AML/CFT purposes (in the UK think MLRs) or iii) subject to light-touch regulation (e.g. for payment purposes).

Who are these digital assets being distributed to?
In the UK the FCA defines 3 client types: Retail, Professional and Eligible
Counterparties
(FCA Handbook, COBS3 (Conduct Of Business Sourcebook)).

Each of these clients have their own ‘nature’.
And this is where it starts to get nuanced.

All of us, as individuals, are end consumers.
Sometimes I might choose direct ownership, but sometimes I choose an intermediary to act on my behalf.
For example, it’s ‘my’ pension fund – but I choose an intermediary, i.e. an eligible counterparty, to manage my investments.
What is important, is that I have a pathway to access the investment product of my choice or the product which I want exposure to.

In the FT article, Hector McNeil, co-founder of London-based HANetf, promotes the need for gating (suitability) and draws the conclusion that without any gate, the unintended consequence is to push people to unregulated crypto exchanges.

Gating is nothing new. (Back to COBS9A.2). Suitability is something intermediaries know how to do. It is not the product that determines the suitability – it is the nature of the client.

When we established GFO-X we thought long and hard about pathways to GFO-X. That included being in the existing regulatory perimeter. Futures and Options are specified investments in the UK.
Which is why we offer Futures and Options on a Benchmark Index.

And because GFO-X is a regulated MTF, it opens the pathway, for any professional investor or authorised counterparty, access to our market and to unlock the services they can provide.

(Pic: https://lnkd.in/dXWgZNPb)