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The UK's Financial Conduct Authority has proposed letting authorized investment funds, including UCITS schemes and most non-UCITS retail schemes, hold up to 10% of scheme property in crypto exchange-traded notes, closing a regulatory gap left when the watchdog lifted its four-year retail ban in August 2025. The proposal sits inside the FCA's 52nd quarterly consultation paper and carries a five-week comment window closing July 13.
The 10% cap is deliberate: the FCA argues that material exposure beyond that threshold could force funds to be reclassified as restricted mass-market investments, complicating their status as mainstream retail products. Qualified investor schemes, limited to professional clients and sophisticated investors, would face no cap. Long-term asset funds and non-UCITS retail schemes operating as alternative investment funds would be excluded entirely, with the FCA saying crypto is inconsistent with those structures' investment objectives.
Why it matters
The Investment Association, the UK asset management trade body, backed the move. John Allan, director of its Innovation and Operations Unit, called the proposal "a sensible and pragmatic step" that lets funds access crypto through regulated ETNs rather than unregulated alternatives, with the 10% threshold keeping risk appropriately managed. Eligible ETNs must be traded on UK-recognized investment exchanges or on EU and global venues that clear the FCA's existing eligible-markets test, and fund managers will have to show that any holding fits the fund's disclosed objectives and risk profile — with material exposure disclosed as a core feature of strategy.
The proposal extends a sequence of UK crypto-ETN milestones: the retail ban lifted in October 2025, with 21Shares, Bitwise, WisdomTree, and BlackRock listing physically backed bitcoin and ether products on the London Stock Exchange within days, and HMRC ruling in April 2026 that new purchases can no longer sit inside standard stocks-and-shares ISAs but can be held in Innovative Finance ISAs tax-free.
Frequently asked questions
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What exactly did the FCA propose for UK authorized funds and crypto ETNs?
The FCA proposed letting authorized investment funds, including UCITS schemes and most non-UCITS retail schemes, hold up to 10% of scheme property in crypto exchange-traded notes. Qualified investor schemes would face no cap; long-term asset funds and AIF-structured non-UCITS retail schemes would be excluded.
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Why did the FCA cap crypto ETN exposure at 10% rather than allowing more?
The regulator said material exposure beyond 10% could force funds to be reclassified as restricted mass-market investments, complicating their status as mainstream retail products. The 10% ceiling keeps funds inside the standard retail wrapper while still permitting meaningful crypto exposure.
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Which crypto ETNs are eligible under the proposal?
ETNs traded on UK-recognized investment exchanges, plus those on EU and global venues that meet the FCA's existing eligible markets tests. The proposal does not permit authorized funds to hold crypto assets directly for investment purposes.
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How does this fit with the UK's earlier crypto ETN milestones?
It follows the FCA's August 2025 decision to lift the four-year retail crypto ETN ban, the October 2025 LSE listings by 21Shares, Bitwise, WisdomTree, and BlackRock, and HMRC's April 2026 ruling routing new purchases into the Innovative Finance ISA wrapper.
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When does the consultation close and what happens next?
The consultation runs for five weeks and closes on July 13. The FCA also said it is not currently considering direct crypto holdings by authorized funds for investment purposes, and will revisit that stance after assessing the incoming crypto asset regulatory regime.
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