FCA proposes 10% crypto ETN cap for authorised funds

The Financial Conduct Authority has proposed allowing authorised investment funds, including UCITS and most non‑UCITS retail schemes, to hold up to 10% of scheme property in crypto exchange‑traded notes (ETNs).

The proposal appears in the FCA’s 52nd quarterly consultation paper and opens a five‑week comment period, with responses due by July 13. Funds would be permitted to hold ETNs listed on UK‑recognised investment exchanges and on EU and global markets that meet the FCA’s eligible markets tests. Fund managers would need to show any holding fits a fund’s disclosed investment objectives and risk profile, and disclose exposure above a genuine de minimis level as a material feature of the fund.

The regulator said the 10% ceiling is deliberate because larger, material allocations could require funds to be reclassified as restricted mass‑market investments, affecting their status as mainstream retail products. Qualified investor schemes limited to professional and sophisticated investors would not face a cap under the proposal.

Long‑term asset funds and non‑UCITS retail schemes that operate as alternative investment funds would be excluded from holding crypto ETNs, the FCA added. The regulator also said it is not currently considering allowing authorised funds to hold crypto assets directly for investment purposes and will review that position once the incoming crypto asset regulatory regime and client asset safeguarding rules are assessed.

The change follows earlier regulatory steps in the UK crypto ETN market. The FCA lifted its retail ban in 2025, after which several major issuers listed physically backed bitcoin and ether ETNs on the London Stock Exchange. In April 2026 HM Revenue & Customs updated ISA rules so new purchases of crypto ETNs can be held via the Innovative Finance ISA route, while they are no longer eligible for standard stocks‑and‑shares ISAs.

John Allan, Director of the Innovation and Operations Unit at the Investment Association, described the proposal as “sensible and pragmatic,” adding that accessing crypto through listed, regulated products gives investors a more transparent route than unregulated alternatives and that a 10% threshold helps keep risks managed.

Under the proposal, fund managers and depositaries would be expected to carry out due diligence on ETNs and the exchanges where they trade and to consider how credit, custody and liquidity risks fit with investor expectations. The FCA also suggested treating any crypto ETN exposure as part of a fund’s overall risk limits and investment disclosures.

The consultation would allow authorised retail funds regulated access to crypto exposure via ETNs while keeping direct crypto holdings out of mainstream authorised fund structures for now. The FCA will review consultation responses before deciding whether to finalise any rule changes.