The UK Financial Conduct Authority (FCA) has introduced a proposal that would allow certain authorized investment funds to allocate up to 10 percent of their portfolios to crypto exchange-traded notes. This move is designed to narrow the regulatory gap between some retail-accessible funds and other investment vehicles.
Limited crypto access for retail funds
According to a three-month consultation paper published Friday, the measure could enable collective investment schemes investing in transferable securities, known as UCITS, as well as some non-UCITS funds, to gain indirect exposure to crypto. The FCA noted that this step aims to keep authorized funds competitive while ensuring investor protection and healthy market functioning.
Glossary: UCITS is a widely used European and UK investment fund framework subject to strict rules on risk, transparency, and investor protection. Because these funds are generally available to individuals, regulators set tighter boundaries around their activities.
The proposal follows the FCA’s decision in August to lift its ban on retail investors buying crypto ETNs. The agency is now aiming for a more consistent approach to regulating who can purchase crypto-related products.
The FCA emphasized that the proposed 10 percent limit would impose a cautious restriction on the assets these funds can hold, even as they become available for retail marketing.
Prudent cap and suitability requirement
The regulator also stated that, given the speculative nature of crypto assets, it does not view significant retail fund exposure to such products as appropriate. Therefore, this upper limit is seen less as broad liberalization and more as a carefully controlled opening.
Retail-oriented funds seeking crypto exposure will also be required to demonstrate that such investments align with their stated objectives and risk profiles. Permission alone will not suffice; investment choices must fit each fund’s structure and purpose.
Wider latitude for professional investor funds
The consultation document notes that unregulated funds and schemes open solely to qualified investors will still have freedom to invest in more speculative assets without a defined holding cap. However, these products cannot be marketed or sold to retail investors under any circumstance.
The FCA is also seeking input on whether to bar long-term investment funds, such as those focused on real estate, and certain other retail-focused funds from holding crypto ETNs. The regulator stated these products do not align with the typical objectives of such funds.
Broader crypto regulatory agenda in the UK
The consultation period for these proposals will last five weeks and end on July 13. This initiative comes amid a broader movement to establish a comprehensive crypto regulatory framework in the UK. The FCA and Bank of England are also working on new rules for stablecoins, crypto custody, and staking services.
Last month, the Bank of England indicated it would reconsider parts of its stablecoin framework after warnings from crypto companies that proposed reserve requirements and holding limits could hamper adoption. In April, the FCA rolled out rules for tokenized funds and steps to facilitate blockchain use among asset managers.
