The Financial Conduct Authority’s landmark proposal would open a regulated pathway for mainstream UK funds to gain crypto exposure — but with strict limits attached
The United Kingdom’s financial watchdog has proposed a significant shift in its approach to cryptocurrency investing, one that could bring digital asset exposure into mainstream investment funds for the first time.
The Financial Conduct Authority (FCA) has put forward plans to allow authorized investment funds — including widely used UCITS schemes and most non-UCITS retail schemes — to allocate up to 10% of their portfolios to crypto exchange-traded notes (ETNs). The proposal, published as part of the FCA’s 52nd quarterly consultation paper, is open for public comment until July 13.
What Are Crypto ETNs and Why Does This Matter?
Crypto exchange-traded notes are financial instruments listed and traded on regulated stock exchanges that track the price of a cryptocurrency — most commonly Bitcoin or Ethereum — without requiring investors to hold the digital asset directly. Think of them as a regulated, exchange-listed wrapper around a crypto investment.
Until recently, UK retail investors couldn’t access these products at all. The FCA only lifted a four-year prohibition on selling crypto ETNs to individual retail investors in August 2025, a move framed as part of a broader effort to support UK growth and competitiveness.
But even after that change, there was a notable gap in the rules: authorized investment funds — the professionally managed pools of capital that millions of ordinary savers use — were still effectively barred from holding them. The new proposal is designed to close that gap.
Pros and Cons of Exchange-Traded Notes (ETNs) (Source: Coinpedia)
What Exactly Is Being Proposed?
Under the FCA’s plan:
UCITS funds and most non-UCITS retail schemes would be permitted to hold crypto ETNs, but only up to a 10% ceiling of the fund’s total assets. The regulator has been deliberate about this cap. Allowing material exposure beyond that threshold could trigger a reclassification of funds as “restricted mass-market investments,” which would complicate their standing as standard retail products.
Qualified investor schemes (QIS) — funds limited to professional and sophisticated investors — would face no such ceiling under the proposal, reflecting the assumption that experienced investors are better equipped to manage higher levels of risk.
Long-term asset funds (LTAFs) and non-UCITS retail schemes operating as alternative investment funds would be excluded from holding crypto ETNs entirely. The FCA said it does not view cryptocurrencies as consistent with the investment objectives of these particular structures.
Fund managers would also be required to demonstrate that any crypto ETN holdings align with a fund’s disclosed investment objectives and risk profile. Any exposure beyond a minimal, token amount would need to be disclosed as a material feature of the fund’s strategy.
The Regulatory Logic Behind the 10% Limit
The FCA has been careful to frame this as a measured step, not an endorsement of crypto as a mainstream asset class. In the consultation paper, the regulator stated plainly that it does not believe it would be appropriate to allow funds significant exposure to crypto ETNs “given the speculative nature of the underlying crypto assets.”
The 10% figure is also notable in an international context. Luxembourg’s financial regulator, the CSSF, made a similar move in February 2026 — also setting a 10% indirect crypto exposure limit for UCITS funds. That decision was partly driven by the recognition that retail investors already have direct access to digital assets, and that demand from fund managers was building. Although no crypto-exposed ETFs have yet launched in Luxembourg on the back of the rule change, several asset managers are reported to be exploring how to incorporate the asset class.
Contrast that with Ireland’s Central Bank, which oversees Europe’s largest ETF domicile and has taken a notably more cautious position. A senior official recently acknowledged the regulator is “watching the area with interest” but said there is “not sufficient merit in a rule change at the moment.”
Industry Reaction
The investment industry has broadly welcomed the FCA’s move. The Investment Association, the UK’s main asset management trade body, offered support for the proposal.
John Allan, Director of the Innovation and Operations Unit, called it “a sensible and pragmatic step” that would allow funds to access crypto exposure through regulated ETNs “within a well-understood framework.” He argued that the listed, regulated structure of ETNs provides greater transparency than unregulated alternatives, and that the 10% threshold keeps risks appropriately managed.
What the FCA Is Not Proposing
It is worth being clear about what this proposal does not include. The FCA explicitly stated it is not currently considering allowing authorized funds to hold crypto assets — such as Bitcoin itself — directly. That question remains on hold at least until the regulator has assessed the impact of the incoming broader crypto asset regulatory regime on fund structures, including rules around how client assets are safeguarded.
Background and Timeline
The proposal builds on a string of incremental steps the FCA has taken to integrate crypto into the regulated financial system. Major issuers including BlackRock, 21Shares, Bitwise, and WisdomTree listed physically backed Bitcoin and Ethereum products on the London Stock Exchange shortly after the retail ban was lifted in October 2025. In April 2026, UK investors also gained the ability to hold crypto ETNs inside the tax-efficient Innovative Finance ISA wrapper.
The consultation period on the latest fund allocation proposal closes on July 13, 2026.
