FCA Proposes 10% Crypto ETN Cap for UK Retail Investment Funds

The UK's Financial Conduct Authority (FCA) published a consultation paper on Friday, June 6, proposing to allow retail investment funds to hold up to 10% of their assets in crypto exchange-traded notes (ETNs). The move would close the gap between the rights of retail investors who can already buy crypto ETNs directly, and the tight limits applied to regulated funds until now.

What the FCA Proposed

The consultation covers UCITS (undertakings for collective investment in transferable securities) funds and some similar non-UCITS structures. These categories are allowed to be marketed to retail buyers, which is why they previously faced strict limits on riskier assets. The UK's UCITS market spans thousands of funds managing several trillion pounds in assets.

The FCA explained its reasoning in the consultation text: the 10% cap "sets conservative restrictions on assets to which a fund can be exposed, in exchange for allowing these funds to be marketed to retail consumers." The regulator also stated it does not think it appropriate for retail-focused funds to have "significant exposure" to crypto "given the speculative nature of the underlying cryptoassets." The goal is for funds to stay in line with investor demand while keeping consumer protections intact.

To use the new rule, each fund must show that its crypto ETN investment is consistent with the fund's stated objectives and risk profile. No blanket approval will apply to all funds. The consultation period runs through July 13, 2026.

Who Gets Access and Who Doesn't

The FCA split eligible structures into categories:

• UCITS funds and certain similar retail-accessible structures may hold up to 10% in crypto ETNs, provided the investment aligns with the fund's stated objectives
• unregulated and qualified investor schemes face no cap at all, but cannot be marketed or sold to retail clients
• long-term asset funds (LTAFs) and some real estate-focused retail schemes may not receive access at all

On the last category, the FCA is asking market participants directly: should these funds be barred from holding crypto ETNs altogether? The regulator views crypto as incompatible with the objectives of funds where the core obligation to clients is stable, long-term returns rather than gains from volatile assets.

What Funds Can Actually Buy

The proposal does not change the FCA's broader view on crypto assets as a class. Funds would only be allowed to hold regulated crypto ETNs, not tokens directly or derivatives. Products linked to Bitcoin fall into the category of eligible instruments. Direct token ownership within a regulated fund portfolio remains off-limits.

The FCA is also considering an outright ban for certain fund types. If the regulator concludes that a given fund's investment objectives are incompatible with crypto assets, the 10% threshold simply would not apply. The final size of the market opening for crypto ETNs depends on how participants respond to the consultation.

For the average UK investor, the practical difference between this new mechanism and buying ETNs directly is clear. Fund units come with familiar structures: reporting obligations, audits, and regulatory protections. Buying ETNs directly, while allowed since August 2025, requires a separate brokerage account and independent market research.

UK Opens the Market Step by Step

This proposal continues a consistent policy direction. In August 2025, the FCA lifted its ban on retail investors trading crypto ETNs, aiming to bring UK rules in line with other jurisdictions. Allowing regulated funds access is the next step after retail demand for these instruments was confirmed in the market.

At the same time, the FCA and Bank of England are consulting on rules covering stablecoins, crypto custody, and staking. The Bank of England revised parts of its stablecoin regime in May 2026 following warnings from industry players that strict reserve requirements and holding caps could slow sector growth. In April 2026, the FCA also updated rules for tokenized funds.

If the consultation results in a new rule, UK UCITS funds will gain an official route into crypto through regulated products. Britain is building its own post-Brexit crypto framework at its own pace, separate from the EU's MiCA timeline. Market feedback is due by August 2026.