UK FCA Proposes Allowing Retail Funds to Hold Up to 10% in Crypto ETNs

The United Kingdom’s Financial Conduct Authority (FCA) has proposed allowing certain authorized investment funds to allocate up to 10% of their holdings to crypto exchange-traded notes (ETNs), which is another major step in the country’s evolving approach towards digital asset regulation.

The proposal, published as part of the FCA’s latest quarterly consultation paper, would permit retail-focused investment structures, including UCITS funds and some non-UCITS retail schemes, to gain limited exposure to regulated crypto-linked investment products for the first time.

FCA Moves to Close Retail Crypto Access Gap

The initiative follows the FCA’s decision in 2025 to lift its long-standing ban preventing retail investors from accessing crypto ETNs directly.

However, despite retail investors gaining permission to buy these products individually, many authorized investment funds remained effectively excluded from holding them.

The regulator now appears to be seeking greater consistency between individual investor access and institutional retail fund rules.

According to the FCA, the proposal is designed to ensure that UK investment products remain aligned with changing investor demand while still maintaining adequate consumer protection safeguards.

The regulator emphasized that the proposed 10% cap was intentionally conservative given the speculative and volatile nature of cryptocurrencies.

The FCA argued that allowing significantly larger crypto exposure could fundamentally alter the risk profile of mainstream retail investment products and potentially require them to be reclassified under stricter regulatory categories.

Crypto Exposure Would Remain Limited

Under the proposal, fund managers seeking crypto exposure would only be allowed to invest through regulated crypto ETNs listed on recognized investment exchanges in the UK and other approved international markets.

The FCA also stressed that any crypto allocation must remain consistent with a fund’s disclosed investment objectives and overall risk profile.

Funds would additionally be required to clearly disclose material crypto exposure to investors as part of their investment strategy documentation.

Not all investment vehicles would qualify under the new framework.

The regulator said certain structures focused on long-term assets, such as property-oriented funds and some alternative investment vehicles, would remain prohibited from holding crypto ETNs altogether because cryptocurrencies are not viewed as compatible with their underlying investment mandates.

Meanwhile, qualified investor schemes limited to professional and sophisticated investors would not face a specific cap on crypto ETN exposure under the proposal.

Industry Welcomes “Pragmatic” Approach

The proposal received support from parts of the UK asset management industry, which has increasingly pushed for clearer regulatory pathways around digital assets.

John Allan, Director of the Innovation and Operations Unit at the Investment Association, described the proposal as a balanced and practical step that supports innovation while operating within an established regulatory framework.

Industry participants have argued that allowing investors to access crypto exposure through regulated exchange-traded products may offer a more transparent and structured alternative to unregulated offshore crypto platforms.

The FCA, however, clarified that it is not currently considering allowing authorized retail funds to directly hold cryptocurrencies themselves.

Instead, the regulator said it intends to continue monitoring the broader crypto regulatory environment before considering any expansion toward direct digital asset ownership within retail investment products.

UK Continues Building Crypto Regulatory Framework

The latest proposal forms part of a broader effort by British regulators to establish a more comprehensive framework governing digital assets and blockchain-related financial products.

Over recent months, both the FCA and the Bank of England have launched multiple consultations covering stablecoins, crypto custody services, staking activities, tokenized funds, and broader digital asset infrastructure.

The Bank of England recently indicated it may reconsider parts of its proposed stablecoin regime after industry participants warned that certain reserve requirements and holding limits could hinder adoption and innovation.

Meanwhile, the FCA has also introduced new guidelines aimed at simplifying the use of blockchain technology in tokenized investment funds.

UK Positions Itself Between Innovation and Risk Control

The FCA’s latest proposal highlights the increasingly delicate balancing act regulators face globally as cryptocurrencies move deeper into mainstream finance.

On one hand, regulators are under growing pressure to provide clearer rules that support innovation, institutional adoption, and investor access to digital assets.

On the other hand, authorities remain cautious about exposing mainstream retail investors too heavily to highly volatile and speculative crypto markets.

By proposing limited, regulated exposure rather than unrestricted access, the UK appears to be pursuing a middle-ground approach that attempts to integrate digital assets into traditional finance without fully embracing the risks associated with direct crypto ownership.

The outcome of the consultation may ultimately shape how far traditional investment products in the UK are allowed to participate in the rapidly expanding digital asset economy.