The UK's Financial Conduct Authority (FCA) has unveiled a proposal that would allow authorized investment funds to allocate up to 10% of their assets to crypto exchange-traded notes (ETNs). Announced in the FCA's 52nd quarterly consultation paper, the plan targets UCITS funds and most non-UCITS retail investment schemes, marking a pivotal step in integrating digital assets into regulated mainstream portfolios.
Historical Context: The FCA banned the sale of crypto derivatives and ETNs to retail consumers in 2021, citing extreme volatility and investor protection risks. This new consultation signals a significant policy shift, though direct crypto holdings remain off-limits. Funds would only be permitted to invest in listed crypto ETN products, such as those tracking Bitcoin and Ether.
Proposed Limits and Exclusions: The 10% cap is designed to control exposure while still allowing participation in the digital asset market. However, qualified investor schemes – which cater to professional and sophisticated clients – would face no limit under the proposal. Long-term asset funds and certain alternative investment funds are excluded from any crypto ETN holdings, as the FCA deemed exposure incompatible with their product objectives.
Market Developments: The proposal comes after the FCA lifted its retail ban on crypto ETNs earlier this year, enabling direct access for individual investors. Major issuers including 21Shares, Bitwise, WisdomTree, and BlackRock subsequently listed physically backed Bitcoin and Ether products on the London Stock Exchange. In April 2026, UK users also gained tax-free crypto ETN access via Innovative Finance ISAs, further expanding institutional product coverage.
Next Steps: The consultation period is open for five weeks, with a deadline of July 13, 2026. Final rules are expected later in the year. The FCA emphasizes that robust risk management, mandatory disclosure, and volatility warnings will accompany any approved changes. Industry groups have welcomed the framework, though consumer advocates remain cautious about retail investor suitability.
