MV Capital - UK FCA Proposes 10% Crypto ETN Limit for Retail Investment Funds

The UK’s Financial Conduct Authority has outlined plans to let authorized funds invest up to 10% of assets in crypto exchange-traded notes. This move addresses a gap after retail investors gained direct access, while maintaining strict safeguards and keeping direct cryptocurrency ownership off limits for these funds

Regulatory Background and Proposal Details

The Financial Conduct Authority (FCA) included the proposal in its 52nd quarterly consultation paper. It would permit UCITS schemes and most non-UCITS retail funds to hold crypto ETNs listed on recognized UK exchanges or qualifying international markets. The 10% ceiling on total scheme assets aims to keep funds within their current regulatory classifications and avoid triggering additional requirements for retail products.

Portfolio managers must ensure any ETN holdings align with the fund’s stated investment objectives and risk profile. The FCA emphasized that exposure above a minimal level should be clearly disclosed as a material part of the fund’s strategy. Direct ownership of cryptocurrencies remains prohibited for these authorized funds. The regulator plans to review this stance later, once the broader UK crypto asset framework and client asset protection rules are in place.

Key Restrictions10% cap applies to UCITS and most non-UCITS retail funds
Qualified investor schemes face no allocation limit
Long-term asset funds and certain alternative investment funds are excluded
Direct crypto ownership not permitted

Rationale Behind the 10% Ceiling

By setting a conservative limit, the FCA seeks to balance investor demand with consumer protection. Higher allocations could reclassify funds as restricted mass-market investments, imposing stricter rules. The regulator noted that crypto assets remain speculative, making significant exposure unsuitable for retail-focused products without additional safeguards.

This approach keeps funds contemporary with investor interests while ensuring markets function effectively. The proposal follows the FCA’s 2025 decision to lift the retail ban on crypto ETNs, which led to listings from issuers including 21Shares, Bitwise, WisdomTree, and BlackRock on the London Stock Exchange.

Industry Reaction and European Context

"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."Jon Allen, Investment Association

Similar access already exists for investment funds in countries such as Germany, Switzerland, and the Netherlands. UK fund managers had highlighted the inconsistency where individual retail investors could access ETNs but collective investment schemes could not.

Recent Developments in UK Crypto ETN Access

The current consultation builds on prior reforms. In late 2025, the FCA ended a four-year restriction, enabling retail trading of crypto ETNs. Additional options emerged in 2026 through Innovative Finance ISAs, providing tax-efficient routes for certain products. Platforms like Interactive Investor, Freetrade, and Revolut also offer access, though investor protections vary.

The five-week consultation runs until July 13, inviting feedback from industry participants. Final rules could further integrate digital assets into traditional fund structures under controlled conditions.

Summary of Proposal ImpactCloses regulatory gap between retail investors and their funds
Promotes innovation while maintaining risk controls
Aligns UK practices with select European markets
Focus remains on regulated ETNs rather than direct holdings

This development signals continued progress in the UK’s regulated crypto market. Authorized funds could soon offer limited, transparent exposure to digital assets for retail investors seeking diversification.