The UK’s Financial Conduct Authority has proposed allowing retail fund structures to hold cryptoasset exchange traded notes, subject to a 10% cap on exposure. The proposal, laid out in consultation paper CP26/17, would apply to both UCITS schemes and non-UCITS retail schemes, while keeping direct crypto holdings firmly off-limits for authorised funds.
What the FCA is proposing for UK retail funds
Chapter 5 of CP26/17 proposes allowing UCITS schemes and NURS to invest in cryptoasset exchange traded notes. The draft rule text would cap that exposure at 10% of scheme property for both fund types.
The proposal covers crypto ETNs specifically, not spot cryptocurrency holdings. Fund managers would be able to allocate up to one-tenth of a scheme’s property to these exchange-traded instruments, giving retail investors indirect crypto exposure through familiar fund wrappers.
This matters in the context of broader institutional crypto adoption. While products like BlackRock’s IBIT have driven significant Bitcoin ETF flows in the US, UK retail funds have had no regulated pathway to include crypto ETN exposure in their portfolios until now.
Where the FCA draws the line on crypto exposure
The consultation is permissive only in a narrow way. The FCA stated explicitly that authorised funds are not currently being considered for direct cryptoasset holdings. The 10% cap applies strictly to exchange traded notes, not to holding bitcoin, ether, or any other cryptoasset directly.
The treatment also varies significantly across fund types. According to ETF Stream’s reporting, the FCA is proposing no ceiling on crypto ETN exposure for qualifying investor schemes. QIS, which serve sophisticated investors, would face fewer constraints than retail-oriented structures.
At the other end of the spectrum, the FCA is seeking views on whether to prohibit crypto ETN holdings entirely for long-term asset funds and NURS operating as funds of alternative investment funds. This creates a clear regulatory hierarchy: QIS with no cap, UCITS and NURS with 10%, and LTAFs and FAIF-style NURS potentially barred altogether.
The asymmetry reflects the FCA’s risk-based approach, calibrating exposure limits to the sophistication of each fund’s investor base. For readers tracking how traditional financial infrastructure is adapting to digital assets, the tiered framework signals a regulator testing incremental access rather than broad deregulation.
Why the proposal matters and what comes next
CP26/17 builds on the FCA’s decision to reopen retail access to crypto ETNs. The regulator announced on 1 August 2025 that it would lift the ban on selling crypto ETNs to retail investors, with the rule change taking effect on 8 October 2025.
That earlier move allowed individual retail investors to buy crypto ETNs directly. The current consultation goes a step further by proposing that authorised fund structures themselves may hold these instruments in their portfolios, potentially channelling crypto exposure to investors who access markets exclusively through managed funds.
The distinction matters. An individual buying a crypto ETN on a trading platform makes a deliberate allocation choice. A UCITS scheme adding crypto ETN exposure affects every investor in that fund, making the 10% guardrail a portfolio-level safeguard rather than an individual risk decision.
Comments on the relevant chapters of CP26/17 are due by 13 July 2026, giving fund managers and industry participants roughly one month to respond.
The proposal arrives during a period of subdued market sentiment, with the broader crypto market navigating cautious conditions. Whether the final rules retain the 10% threshold or adjust it based on industry feedback will depend on the responses the FCA receives before the July deadline.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency and digital asset markets carry significant risk. Always do your own research before making decisions.
