The Financial Conduct Authority (FCA) has proposed a regulatory framework that permits certain retail investment funds to allocate up to 10% of their portfolios to crypto exchange-traded notes (ETNs). This measure seeks to close the gap in crypto access between retail investors and authorized funds while maintaining safeguards against excessive risk.
The proposal, outlined in the FCA’s latest consultation paper, targets undertakings for collective investment in transferable securities (UCITS funds) and some non-UCITS funds, which are retail-focused investment vehicles regulated to protect general investors. By allowing these funds limited exposure to crypto ETNs, the FCA aims to modernize fund offerings without compromising safety or market integrity.
The regulator emphasized that while it is open to granting retail investors access to crypto via regulated funds, it considers higher crypto exposure unsuitable due to the speculative nature of underlying assets. Retail funds must ensure any crypto allocation aligns strictly with their stated investment objectives and risk profiles. In contrast, unregulated and qualified investor schemes, which can pursue riskier assets without exposure limits, remain restricted from marketing to retail consumers.
To further protect investors, the FCA is seeking feedback on whether certain fund categories—particularly those focused on stable, long-term assets like real estate—should be prohibited from holding crypto ETNs altogether, arguing that crypto does not fit their core investment strategies. This layered approach underlines the FCA's effort to tailor rules based on fund type and investor sophistication.
The consultation period on the proposed changes will remain open for five weeks, inviting input until mid-July. This initiative forms part of a broader UK regulatory movement to accommodate crypto innovations. Recent steps include consultations on stablecoin frameworks, crypto custody, and staking rules conducted jointly by the FCA and the Bank of England.
Such developments come amid the UK’s effort to strike a balance between fostering technological progress in financial markets and enforcing consumer protection. The Bank of England recently reconsidered aspects of its stablecoin proposal following industry concerns that stringent holding caps and reserve mandates could hamper market adoption. Meanwhile, the FCA has introduced new guidelines enabling tokenized funds and clarified regulatory expectations for key crypto services.