The Financial Conduct Authority has proposed allowing authorised UK investment funds to allocate up to 10% of their assets to crypto exchange-traded notes, creating a controlled path for indirect digital-asset exposure. The proposal appears in the FCA’s 52nd quarterly consultation paper, with the consultation open until July 13, 2026.
If adopted, the change would allow UCITS and most non-UCITS retail funds to hold listed crypto ETNs while continuing to prohibit direct cryptocurrency ownership. The structure is designed to widen access without removing the regulatory separation between fund exposure and direct crypto custody.
FCA Keeps Crypto Exposure Inside Listed Products
Under the draft rules, authorised funds could hold up to 10% of net assets in crypto ETNs listed on recognised UK exchanges and qualifying EU or global markets that meet existing eligibility standards. The FCA frames the ceiling as a concentration-risk control rather than an open-ended crypto allocation mandate.
The proposal keeps direct crypto holdings outside regulated retail fund portfolios. Fund managers would not be allowed to custody underlying tokens, meaning exposure would need to come exclusively through approved listed ETN products, a model intended to reduce custody, settlement and operational complexity.
The 10% cap is also meant to prevent authorised funds from taking large enough positions to move into the category of “restricted mass market investments.” That classification would trigger additional consumer-protection and distribution requirements, so the limit functions as a boundary for both portfolio risk and product governance.
Not every fund would qualify. Long-term asset funds and non-UCITS retail schemes structured as alternative investment funds would remain barred from holding crypto ETNs under the proposal, preserving a stricter treatment for vehicles with different liquidity and investor-protection profiles.
Professional Funds Face More Flexibility
Qualified investor schemes aimed at professional clients and sophisticated investors would not face an allocation cap under the draft rules. That distinction gives institutional-facing vehicles more flexibility while keeping retail-oriented products inside a more tightly controlled exposure framework.
Industry reaction has been broadly measured. Jon Allen, head of innovation and operations at the Investment Association, described the proposal as “a practical step that would let funds gain crypto exposure through regulated ETN products,” capturing the sector’s preference for access through supervised instruments.
The proposal follows the FCA’s October 8, 2025 decision to lift its earlier ban on retail investor access to crypto ETNs. The latest consultation extends that policy direction into authorised funds, aligning fund access with a broader recalibration of crypto product rules in the UK.
The change would create a clearer operating route for adding crypto ETNs to retail mandates. Product eligibility rules and the 10% ceiling would remain central, meaning crypto exposure could enter portfolios without becoming a dominant allocation.
The practical effect would be more indirect access to digital assets through regulated fund structures. At the same time, the ban on direct token holdings would keep consumer protections focused on listed instruments rather than underlying crypto ownership.
The consultation closes on July 13, 2026, after which the FCA will decide whether to finalise the measures. If implemented, the rules could increase demand for regulated ETNs and modestly improve liquidity in listed crypto instruments accessible to UK retail funds, while issuers may adjust pricing, credit terms and secondary-market depth to meet new demand.
