UK FCA proposes allowing authorized funds to allocate up to 10% to crypto ETNs

The United Kingdom's Financial Conduct Authority has proposed permitting authorized investment funds, including UCITS schemes and most non-UCITS retail schemes, to hold up to 10% of their scheme property in crypto exchange-traded notes.

The proposal is part of the FCA's 52nd quarterly consultation paper, and carries a five-week comment window. It targets a regulatory gap between individual retail investors — who gained direct access to crypto exchange-traded notes when the FCA lifted its four-year prohibition in August 2025 — and authorized funds, which the watchdog had maintained an effective bar on despite no formal rule change.

Notably, the FCA said the 10% ceiling is intentional.

The regulator argued that allowing material exposure beyond that threshold could require funds to be reclassified as restricted mass-market investments, thereby complicating their status as mainstream retail products.

Qualified investor schemes, which are limited to professional clients and sophisticated investors, would be subject to no cap under the proposal. Long-term asset funds and non-UCITS retail schemes operating as alternative investment funds would be excluded from holding crypto ETNs entirely, as the FCA said it does not consider cryptocurrencies consistent with those structures' investment objectives.

Industry support

The Investment Association, a UK asset management trade body, backed the proposal.

"We welcome this sensible and pragmatic step from the FCA to allow funds to access crypto exposure through regulated ETNs as it supports innovation within a well-understood framework," John Allan, Director of the Innovation and Operations Unit, told The Block.

Allan argued that accessing crypto through listed, regulated products offers investors a more transparent route than unregulated alternatives, and that the 10% threshold helps keep risks appropriately managed.

The FCA said the funds would be permitted to hold crypto ETNs traded on UK-recognized investment exchanges, as well as those traded on EU and global markets that meet the existing eligible markets tests.

Fund managers would be required to demonstrate that any crypto ETN holding aligns with a fund's disclosed investment objectives and risk profile — and to disclose exposure beyond a genuine de minimis level as a material feature of the fund's strategy.

The regulator stressed it is not currently considering allowing authorized funds to hold crypto assets directly for investment purposes, adding that it will keep that position under review at least until it has assessed the impact of the incoming crypto asset regulatory regime on fund structures, including client asset safeguarding rules.

The proposal follows a sequence of regulatory steps in the UK crypto ETN market.

Fund managers, depositaries, and cETN operators had already raised the question of authorized fund access during the FCA's consultation on retail access last June, which The Block reported at the time.

The FCA also officially lifted its retail ban in October 2025, and major issuers, including 21Shares, Bitwise, WisdomTree, and BlackRock, listed physically backed bitcoin and ether products on the London Stock Exchange within days.

In April 2026, UK investors gained tax-free access to crypto ETNs via the Innovative Finance ISA route after HMRC ruled that new purchases could no longer be held inside standard stocks-and-shares ISAs.

The consultation on the fund allocation proposal closes on July 13.