UK FCA Proposes Allowing UCITS Funds to Invest Up to 10% in Crypto ETNs – What It Means for Investors

The UK’s Financial Conduct Authority (FCA) has proposed a key regulatory update that would let authorized investment funds – including UCITS schemes – allocate up to 10% of their assets to crypto exchange-traded notes (ETNs). This move could significantly expand institutional and retail access to digital assets through regulated vehicles, potentially boosting demand for Bitcoin and Ethereum-linked products.

Announced in the FCA’s 52nd Quarterly Consultation Paper (CP26/17), published in early June 2026, the proposal addresses a regulatory gap that emerged after retail investors gained direct access to crypto ETNs in October 2025. The consultation is open for five weeks, with feedback due around mid-July 2026.

What the FCA Proposal Entails

Under the plans, UCITS funds, most non-UCITS retail schemes (NURS), and other authorized retail investment funds would be permitted to invest up to 10% of scheme property in crypto ETNs. The 10% cap is designed to maintain diversification, limit volatility exposure, and prevent funds from being reclassified as restricted mass-market investment products.

Excluded vehicles include:

• Long-Term Asset Funds (LTAFs)
• Alternative Investment Fund (AIF) structures operating as non-UCITS retail schemes

Funds aimed at professional and sophisticated (qualified) investors would face no 10% limit.

Importantly, the FCA is not proposing direct holdings of cryptocurrencies by authorized funds. Exposure would remain indirect, via regulated crypto ETNs listed on approved exchanges (such as UK Recognised Investment Exchanges).

What Are Crypto ETNs?

Crypto ETNs are debt securities that track the performance of underlying cryptocurrencies like Bitcoin or Ethereum. They offer:

• Regulated market access and oversight
• Simplified custody (no need for private keys)
• Exchange-traded liquidity
• Easier compliance for traditional fund managers

These products gained traction after the FCA lifted its 2021 ban on retail sales of crypto ETNs in 2025, with several Bitcoin and Ethereum ETNs now listed on the London Stock Exchange.

Background and Timeline

• 2021: FCA banned sale of crypto derivatives and ETNs to retail investors due to volatility and protection concerns.
• 2024–2025: Gradual opening for professional investors, followed by full retail access to ETNs on approved exchanges from 8 October 2025.
• 2026: Current proposal closes the gap for authorized funds, allowing them to hold the same regulated products that retail investors can now buy directly.

This fits into the UK’s broader push to become a global hub for digital assets, with a full crypto regulatory regime targeted for implementation by October 2027.

Why the 10% Limit?

The FCA wants to balance innovation with investor protection. Exceeding 10% could change a fund’s risk profile and marketing restrictions. The cap supports:

• Diversification requirements
• Retail investor safeguards
• Controlled systemic risk management
• Gradual, measured adoption of crypto

Industry Reaction and Potential Impact

Early feedback from asset managers and industry groups has been positive. Many see regulated ETNs as a safer, compliant bridge to digital assets without the operational burdens of direct crypto custody.

Potential market effects:

• Increased institutional inflows into Bitcoin and Ethereum ETNs
• Greater liquidity and price discovery in regulated crypto products
• Enhanced legitimacy for digital assets in traditional portfolios
• Competitive boost for UK funds vs. those in the EU, US, and Asia

UCITS funds alone manage trillions in assets, so even small allocations could drive meaningful capital into the sector.

The FCA continues to highlight risks: crypto remains highly volatile, and investors could lose money.

Next Steps

The consultation runs for five weeks. After reviewing responses, the FCA will decide on final rules. Outcomes will be watched closely by fund managers, crypto firms, and European policymakers.

This proposal represents another pragmatic step in integrating crypto into the UK’s regulated financial system — offering measured exposure while prioritizing consumer protection.

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