UK Regulator Proposes Allowing Retail Funds to Hold Up to 10 Percent in Crypto ETNs

The UK's Financial Conduct Authority (FCA) has proposed to allow some authorised investment funds to hold up to a 10 percent allocation of crypto exchange-traded notes (ETNs). This will help in narrowing the gap between retail investors and funds. According to the announcement made by the FCA in a consultation paper released every quarter, this move aims to enable Undertakings for Collective Investment in Transferable Securities (UCITS) funds and other non-UCITS funds to be able to access cryptocurrencies. The objective of this policy proposal is that regulations should ensure that consumers purchasing crypto products are aligned with those of other countries.

Consultation Seeks Feedback on Retail Access to Crypto Exposure

The regulator said the proposal aims to keep authorised funds aligned with evolving investor demand while maintaining adequate consumer protection and ensuring markets continue to function effectively. In its consultation paper, the FCA noted that the proposed 10 percent cap would impose conservative limits on the level of exposure a fund can have to crypto assets, while allowing such funds to be marketed to retail investors.

The FCA added that it didn't want to allow retail-focused funds “to have significant exposure” as it would be inappropriate for crypto products, “given the speculative nature of the underlying cryptoassets.” Retail funds seeking exposure to crypto assets would also be required to demonstrate that such investments align with the fund's stated investment objectives and overall risk profile.

The FCA has also consulted on whether it should prohibit investments for long-term assets like real estate, among others, and retail funds from investing in crypto ETNs, since crypto assets do not meet their investment goals according to the FCA's point of view. The consultation paper will be available for the next five weeks, until July 13. 

Last year in October, the UK lifted its four-year ban on crypto ETNs, allowing retail investors to access these products for the first time since 2021. The FCA said the decision reflects the “evolution of the market,” with crypto ETNs now considered to be better understood and more mainstream. These securities do not require investors to hold the underlying tokens directly. Instead, they track the price of digital assets like Ethereum and Bitcoin. The move aligns the UK with other major jurisdictions that have already opened regulated access to crypto-linked products.