UK Regulator Proposes 10% Crypto ETN Cap for Mutual Funds—Direct Holdings Still Banned
The UK FCA proposed allowing authorized funds up to 10% crypto ETN exposure, closing a gap where retail investors had access but their fund managers did not. Qualified investor funds face no cap; direct crypto holdings remain banned.
In Brief
- The FCA proposes allowing UCITS and retail funds up to 10% allocation to crypto ETNs.
- Qualified investor funds face no cap, but long-term asset funds are excluded entirely.
- Direct cryptocurrency holdings remain off-limits for all authorized funds.
The UK’s Financial Conduct Authority proposed Monday that authorized investment funds—including UCITS schemes and most non-UCITS retail funds—be permitted to allocate up to 10% of their assets to crypto exchange-traded notes. The proposal, part of the FCA’s 52nd quarterly consultation paper, opens a five-week comment window closing July 13.
The move closes a regulatory gap: individual retail investors gained direct access to crypto ETNs when the FCA lifted its four-year ban in October 2025, but the funds managing their money remained effectively barred. Major issuers including 21Shares, Bitwise, WisdomTree, and BlackRock listed physically backed bitcoin and ether products on the London Stock Exchange within days of the retail ban lifting.
The 10% Ceiling Is Intentional
The FCA said the 10% cap is deliberate. Allowing material exposure beyond that threshold could force funds to be reclassified as restricted mass-market investments, complicating their status as mainstream retail products. Fund managers must demonstrate that any crypto ETN holding aligns with the fund’s stated investment objectives and risk profile, and must disclose exposure beyond a de minimis level as a material feature of the fund’s strategy.
Not all fund structures qualify. Qualified investor schemes limited to professional clients and sophisticated investors face no allocation cap under the proposal. Long-term asset funds and non-UCITS retail schemes operating as alternative investment funds are excluded entirely—the FCA says it does not consider cryptocurrencies consistent with those structures’ investment objectives.
UK Crypto Fund Access Follows Global Pattern
The UK’s stepped approach mirrors what other jurisdictions are navigating. Malta is actively exploring a prediction market licensing framework, positioning itself as the first EU member to regulate rather than ban—similar logic to the FCA’s crypto ETN progression from retail ban lift to fund access. In the U.S., traditional finance is deepening crypto exposure: NYSE parent ICE completed a $1.64B bet on Polymarket, and Morgan Stanley launched MSBT, becoming the first major U.S. bank to sponsor a spot Bitcoin ETF at just 0.14% annually.
Funds would be permitted to hold crypto ETNs traded on UK-recognized investment exchanges, as well as those on EU and global markets meeting existing eligible markets tests. The regulator stressed it is not currently considering allowing authorized funds to hold crypto assets directly for investment purposes, and will keep that position under review until it assesses the impact of the incoming UK crypto asset regulatory regime on fund structures, including client asset safeguarding rules.
The UK asset-management industry welcomed the move. Jon Allen, head of innovation and operations at the Investment Association, called it a practical step that would allow funds to gain crypto exposure through regulated ETNs.
FAQ
What is the proposed crypto ETN allocation limit for mutual funds?
The FCA proposes a 10% cap on crypto ETN holdings for authorized retail investment funds, including UCITS and most non-UCITS retail schemes.
Which funds are exempt from the 10% cap?
Qualified investor schemes serving professional clients and sophisticated investors would face no allocation cap under the proposal.
Which funds are excluded entirely?
Long-term asset funds and non-UCITS retail schemes structured as alternative investment funds would be prohibited from holding crypto ETNs.
Can funds buy cryptocurrency directly under this proposal?
No. The FCA explicitly stated it is not considering allowing authorized funds to hold crypto assets directly for investment purposes. Exposure is limited to listed and approved crypto ETNs.
What is the consultation deadline?
The consultation on the fund allocation proposal closes on July 13, 2026.
Which exchanges’ crypto ETNs would qualify?
Funds may hold crypto ETNs listed on UK-recognized investment exchanges, as well as those traded on EU and global markets that meet existing eligible markets tests.
