Nikolas Sargeant
TL;DR
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The FCA has proposed allowing some authorized investment funds to hold up to a 10% allocation of crypto exchange-traded notes.
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The proposal aims to narrow the regulatory gap between retail investors and investment funds while maintaining strict consumer protection measures.
The UK’s Financial Conduct Authority (FCA) has proposed a new framework that would allow some authorized investment funds to allocate up to 10% of their portfolios to crypto exchange-traded notes (ETNs), marking a potential shift in how retail-facing funds access digital assets.
The proposal aims to narrow the regulatory gap between retail investors and investment funds while maintaining strict consumer protection measures.
UCITS and Retail Funds Could Gain Controlled Crypto Access
In a quarterly consultation paper published on Friday, the FCA suggested that undertakings for collective investment in transferable securities (UCITS) funds, along with certain non-UCITS funds, could be permitted to gain exposure to crypto through ETNs.
The regulator said the change is intended to ensure authorized funds remain “contemporary and consistent with the demands of investors,” while still safeguarding consumers and ensuring orderly markets.
Central to the proposal is a strict 10% cap on crypto-related exposure. The FCA said the limit is designed to allow retail access to crypto-linked products while preventing excessive risk-taking.
It stated that authorized retail-focused funds should not hold significant exposure to crypto assets, citing the “speculative nature of the underlying crypto assets.”
Funds investing in crypto would also need to demonstrate that such exposure aligns with their stated investment objectives and risk profiles.
While retail-focused funds would face tight restrictions, the FCA noted that unregulated and qualified investor schemes could invest in more speculative assets without a fixed limit.
However, these funds would not be permitted to market or sell their products to retail investors.
The regulator also signaled it may restrict certain long-term investment funds—such as those focused on property—from holding crypto ETNs if it deems such exposure inconsistent with their core objectives.
FCA Balances Innovation With Investor Protection
The FCA emphasized that the goal is not to broadly expand crypto exposure, but to create a controlled environment where retail investors can access regulated products safely.
It argued that allowing “significant exposure” to crypto within retail funds would not be appropriate given the asset class’s volatility and speculative characteristics.
The consultation will run for five weeks, closing on July 13, after which the FCA will review feedback before finalizing its position.
The proposal is part of a wider regulatory effort in the UK to establish clearer rules for the crypto sector.
In recent months, the FCA and the Bank of England have been consulting on frameworks covering stablecoins, custody, and staking services.
The Bank of England has also been reconsidering aspects of its stablecoin regime after industry concerns that reserve requirements and holding limits could slow adoption.
Earlier in April, the FCA introduced updated rules for tokenized funds and sought input on guidance covering stablecoin issuance, crypto trading, custody, and staking—signaling a gradual move toward more structured crypto integration in traditional finance.
