The UK's Financial Conduct Authority has proposed allowing authorized retail investment funds to hold up to 10% of their assets in crypto exchange-traded notes — a significant regulatory step that would bring crypto exposure into the mainstream investment fund universe for the first time in the United Kingdom.
The proposal was floated in the FCA's quarterly consultation paper published Friday and applies to undertakings for collective investment in transferable securities — known as UCITS funds — as well as some non-UCITS retail-focused funds. A five-week consultation period runs until July 13.
What the proposal would allow
Under the FCA's proposed framework, retail-focused authorized funds could gain exposure to crypto ETNs up to a 10% cap — provided the investment is consistent with the fund's disclosed investment objectives and risk profile. The 10% ceiling is explicitly conservative. The FCA described it as setting "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 was clear that it does not believe allowing retail funds to have "significant exposure" to crypto products is appropriate "given the speculative nature of the underlying cryptoassets" — framing the 10% limit as a floor for protection rather than a ceiling on ambition.
For unregulated and qualified investor schemes, the FCA proposed no upper limit on crypto ETN holdings — but those funds cannot be marketed or sold to retail investors, maintaining a separation between sophisticated and retail capital.
The FCA also indicated it would likely prevent funds centered on long-term assets such as property from holding crypto ETNs, on the grounds that crypto is not consistent with those funds' investment objectives.
Why this matters: closing the retail-institutional gap
The proposal directly addresses a regulatory inconsistency that emerged in August 2025, when the FCA lifted its ban on retail investors trading crypto ETNs directly. That change allowed individual retail investors to buy crypto ETNs through their brokerage accounts — but it did not extend to the authorized funds those same investors might hold through ISAs, pensions, or other pooled vehicles. The proposed 10% cap closes that gap, ensuring that retail investors accessing the market through funds have equivalent — if limited — access to crypto products as those trading directly.
The FCA framed the proposal as keeping authorized funds "contemporary and consistent with the demands of investors" while ensuring consumers "are adequately protected and markets function well" — language that positions crypto ETN access as a mainstream investor expectation rather than a fringe request.
The broader UK crypto regulatory picture
The consultation lands as the UK has been systematically building a comprehensive crypto regulatory framework across multiple fronts simultaneously. The FCA and Bank of England are jointly consulting on proposed rules for stablecoins, crypto custody, and staking. The Bank of England last month signaled a softer approach to its stablecoin regime after industry pushback against holding caps and reserve requirements that crypto companies warned could stifle adoption. In April, the FCA made new rules for tokenized funds to ease blockchain adoption by asset managers and sought feedback on stablecoin issuance, trading, custody, and staking guidance.
Together, these regulatory developments are establishing the UK as one of the most proactively constructive major jurisdictions for institutional crypto adoption — a positioning that stands in contrast to the patchwork US regulatory environment where the CLARITY Act is still working through Senate floor debate.
The global institutional adoption context
The FCA's proposal arrives at a moment when institutional crypto adoption frameworks are advancing across multiple major jurisdictions simultaneously. Japan's Liberal Democratic Party has proposed a legal framework for crypto ETF trading. Moody's awarded AAA ratings to BlackRock and Fidelity tokenized money market funds. The US House Ways and Means Committee circulated seven crypto tax reform draft bills. And the CLARITY Act continues its Senate floor progress.
A UK framework allowing retail funds to allocate up to 10% to crypto ETNs would represent a meaningful expansion of the addressable institutional market for digital assets — particularly given that UCITS funds are distributed across European markets, not just the UK, making the potential reach of the proposal significantly broader than domestic adoption figures alone would suggest.
Anais
Weatherly