The United Kingdom’s Financial Conduct Authority (FCA) has proposed new guidelines that would permit authorized investment funds, including UCITS schemes and most non-UCITS retail schemes, to allocate up to 10% of their scheme property to crypto exchange-traded notes (ETNs). This proposal, detailed in the FCA’s 52nd quarterly consultation paper, is subject to a five-week public comment period. It addresses a regulatory gap that emerged after the FCA lifted its four-year ban on retail access to crypto ETNs in August 2025, leaving authorized funds unable to directly participate.
Key Takeaways
- Authorized investment funds in the UK may soon be permitted to hold up to 10% in crypto ETNs.
- This proposed change follows the FCA’s earlier decision to allow retail investors direct access to crypto ETNs.
- A 10% allocation limit is proposed to maintain the status of these funds as mainstream retail products.
- Qualified investor schemes would not have an allocation cap, while certain other fund types would be excluded.
- The FCA is not currently considering direct crypto asset holdings for authorized funds, pending further assessment of the evolving regulatory landscape.
The FCA has deliberately set a 10% limit on allocations to crypto ETNs. The regulator’s rationale is that allowing exposure beyond this threshold could necessitate reclassifying these funds as restricted mass-market investments, thereby complicating their position as standard retail investment products. For qualified investor schemes, which cater to professional and sophisticated investors, no such cap would apply under the proposed rules. Conversely, long-term asset funds and alternative investment funds structured as non-UCITS retail schemes would be entirely prohibited from holding crypto ETNs, as the FCA deems cryptocurrencies inconsistent with their investment objectives.
Industry stakeholders have expressed support for the proposal. The Investment Association, a trade body representing UK asset managers, has welcomed the move. John Allan, Director of the Innovation and Operations Unit at the Investment Association, stated that the proposal represents a “sensible and pragmatic step” that supports innovation within a regulated framework. He further commented that investing in crypto through regulated ETNs offers a more transparent avenue for investors compared to unregulated alternatives, and that the 10% limit ensures appropriate risk management.
Under the proposed rules, funds would be allowed to invest in crypto ETNs listed on UK-recognized investment exchanges, as well as those traded on EU and other global markets that meet existing eligibility criteria. Fund managers would be required to ensure that any crypto ETN holdings align with a fund’s stated investment objectives and risk profile. Furthermore, any exposure exceeding a minimal level must be disclosed as a significant feature of the fund’s strategy.
It is important to note that the FCA has emphasized that it is not presently considering proposals for authorized funds to hold crypto assets directly for investment purposes. This stance will remain under review, particularly as the FCA assesses the impact of the forthcoming crypto asset regulatory regime on fund structures and client asset safeguarding regulations.
Potential Regulatory Precedent
This proposal by the FCA could establish a significant regulatory precedent for how traditional investment funds can gain exposure to digital assets through regulated financial products. By setting a specific allocation limit for crypto ETNs within authorized funds, the FCA is charting a path that balances investor protection with market innovation. This approach may influence regulatory bodies in other jurisdictions as they consider similar measures. The distinction made between retail funds and qualified investor schemes, as well as the exclusion of certain fund types, highlights a nuanced regulatory strategy tailored to different investor profiles and fund structures. The FCA’s cautious approach, emphasizing assessment of the broader crypto regulatory framework before considering direct crypto asset holdings, suggests a methodical evolution of digital asset regulation within the mainstream financial system.
This development is part of a broader sequence of regulatory adjustments concerning crypto ETNs in the UK. Fund managers, depositaries, and ETN operators had previously raised the issue of authorized fund access during the FCA’s consultation on retail access. Following the lifting of the retail ban, several major issuers quickly listed physically backed Bitcoin and Ether ETNs on the London Stock Exchange. More recently, in April 2026, UK investors gained tax-advantaged access to crypto ETNs through the Innovative Finance ISA, after HM Revenue and Customs ruled that new purchases could no longer be held within standard stocks-and-shares ISAs.
The consultation period for this latest proposal concludes on July 13.
Original article : www.theblock.co