The United Kingdom’s Financial Conduct Authority (FCA) has put forth a proposal that would enable authorized investment funds to allocate a portion of their holdings to crypto exchange-traded notes (ETNs). This development represents a significant regulatory shift, allowing funds, including Undertakings for Collective Investment in Transferable Securities (UCITS) schemes and most non-UCITS retail schemes, to invest up to 10% of their scheme property in these crypto-linked instruments.
Key Takeaways
- Authorized investment funds in the UK may soon be permitted to allocate up to 10% of their scheme property to crypto ETNs.
- This proposal follows the FCA’s earlier decision to lift its ban on retail access to crypto ETNs, scheduled for August 2025.
- The 10% allocation limit is intended to maintain the status of these funds as mainstream retail products.
- Qualified investor schemes would not face an allocation cap, while certain fund types like Long-Term Asset Funds and Alternative Investment Funds would be excluded.
- The FCA is not currently considering direct crypto asset holdings for authorized funds but will review this position later.
This proposal is featured in the FCA’s 52nd quarterly consultation paper and is subject to a five-week public comment period. It aims to bridge a regulatory gap that existed even after the FCA removed its four-year ban on retail investors’ direct access to crypto ETNs in October 2025. While retail investors gained direct entry, authorized funds faced an effective barrier, despite no explicit rule prohibiting them.
The FCA has deliberately set a 10% cap on the allocation for authorized funds. The rationale behind this limit is to prevent these funds from being reclassified as “restricted mass-market investments.” Such a reclassification could complicate their standing as conventional retail investment products. In contrast, qualified investor schemes, which cater to professional and sophisticated investors, would not have any cap on crypto ETN allocations. However, funds such as Long-Term Asset Funds and non-UCITS retail schemes structured as Alternative Investment Funds will be prohibited from holding crypto ETNs, as the FCA does not view cryptocurrencies as compatible with their established investment objectives.
Potential Regulatory Precedent
The FCA’s proposal to allow authorized funds to invest in crypto ETNs, albeit with a cap, could establish a new regulatory precedent for the integration of digital assets into traditional financial products. This move signals a more structured approach to digital asset exposure within regulated investment frameworks, moving beyond direct retail access. By permitting a controlled allocation through regulated ETNs rather than direct asset holdings, the FCA is facilitating exposure while attempting to manage risks and maintain investor protection standards. This nuanced approach might influence regulatory discussions in other jurisdictions considering how to balance innovation in digital assets with the stability of established investment vehicles. The distinction made between retail funds and qualified investor schemes, and the exclusion of certain fund types, also sets a precedent for differentiated regulatory treatment based on investor sophistication and fund mandates.
The Investment Association, a prominent UK trade body for asset management, has expressed support for the FCA’s proposal. John Allan, Director of the Innovation and Operations Unit at the Investment Association, stated that this is a “sensible and pragmatic step” that will foster innovation within a recognized framework. He highlighted that investing in crypto via regulated ETNs provides a more transparent and controlled avenue compared to unregulated alternatives, with the 10% threshold ensuring appropriate risk management.
Under the proposal, authorized funds would be allowed to hold 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 demonstrate that these investments align with the fund’s stated investment objectives and risk profile. Furthermore, any crypto ETN exposure exceeding a minimal level must be disclosed as a material aspect of the fund’s strategy.
The FCA has emphasized that it is not currently considering proposals for authorized funds to hold crypto assets directly for investment purposes. This position will be kept under review, particularly following an assessment of the impact of the forthcoming crypto-asset regulatory regime on fund structures and client asset safeguarding rules.
This proposal follows a series of regulatory adjustments concerning crypto ETNs in the UK. Fund managers and ETN operators had previously raised the issue of authorized fund access during the FCA’s consultation on retail access in June. Following the lifting of the retail ban in October 2025, several major issuers, including 21Shares, Bitwise, WisdomTree, and BlackRock, introduced physically-backed Bitcoin and Ether products on the London Stock Exchange. In April 2026, UK investors gained access to tax-free crypto ETNs through the Innovative Finance ISA, after changes to ISA rules affected how new purchases could be held.
The consultation period for this latest proposal concludes on July 13.
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