The United Kingdom’s Financial Conduct Authority (FCA) has proposed permitting authorized investment funds, including UCITS schemes and most non-UCITS retail schemes, to hold up to 10% of their scheme property in crypto exchange-traded notes (ETNs).
The proposal is part of the FCA’s 52nd quarterly consultation paper and carries a five-week comment window. It targets a regulatory gap between individual retail investors—who gained direct access to crypto ETNs when the FCA lifted its four-year prohibition in August 2025—and authorized funds, which the watchdog had maintained an effective bar on despite no formal rule change.
Notably, the FCA said the 10% ceiling is intentional. The regulator argued that allowing material exposure beyond that threshold could require funds to be reclassified as restricted mass-market investments, thereby complicating their status as mainstream retail products.
Qualified investor schemes, which are limited to professional clients and sophisticated investors, would be subject to no cap under the proposal. Long-term asset funds and non-UCITS retail schemes operating as alternative investment funds would be excluded from holding crypto ETNs entirely, as the FCA said it does not consider cryptocurrencies consistent with those structures’ investment objectives.
The Investment Association, a UK asset management trade body, backed the proposal. John Allan, Director of the Innovation and Operations Unit, stated, “We welcome this sensible and pragmatic step from the FCA to allow funds to access crypto exposure through regulated ETNs as it supports innovation within a well-understood framework.”
Allan argued that accessing crypto through listed, regulated products offers investors a more transparent route than unregulated alternatives, and that the 10% threshold helps keep risks appropriately managed. The FCA noted that funds would be permitted to hold crypto ETNs traded on UK-recognized investment exchanges, as well as those traded on EU and global markets that meet existing eligible markets tests.
Fund managers would be required to demonstrate that any crypto ETN holding aligns with a fund’s disclosed investment objectives and risk profile. The regulator stressed it is not currently considering allowing authorized funds to hold crypto assets directly for investment purposes, pending an assessment of the incoming crypto asset regulatory regime.
The proposal follows a sequence of regulatory steps in the UK crypto ETN market. The FCA officially lifted its retail ban in October 2025, and major issuers, including 21Shares, Bitwise, WisdomTree, and BlackRock, listed physically backed bitcoin and ether products on the London Stock Exchange shortly thereafter. In April 2026, UK investors gained tax-free access to crypto ETNs via the Innovative Finance ISA route. The consultation on the fund allocation proposal closes on July 13.
[The Block]
Executive Summary (TL;DR)
The UK FCA’s proposal to allow authorized funds 10% allocation to crypto ETNs reveals a calculated compromise between institutional adoption and regulatory caution, creating a significant but constrained new capital channel for digital assets.
The Core Friction
This proposal exposes the FCA’s fundamental tension: acknowledging crypto’s legitimacy as an asset class while maintaining control through regulatory arbitrage. The 10% cap isn’t arbitrary—it’s a deliberate boundary preventing funds from crossing into “restricted” territory, reflecting regulators’ view of crypto as acceptable only as satellite exposure rather than core strategy. The exclusion of direct crypto holdings in favor of ETNs further reveals institutional skepticism about custody and volatility management, creating a structural preference for packaged, fiat-denominated products that replicate rather than directly hold crypto assets.
Market Impact & Chain Reaction
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Short-term: This unleashes a new wave of institutional demand for crypto ETNs, particularly from UCITS funds seeking compliant exposure. Issuers like BlackRock, WisdomTree, and 21Shares will benefit as traditional asset managers scramble to establish crypto allocations before competitors. Bitcoin and Ethereum ETNs will see immediate inflows, while altcoin exposure remains limited through these structures.
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Mid-term: The 10% ceiling creates a regulatory arbitrage opportunity, spurring the development of specialized crypto funds for sophisticated investors that can exceed these limitations. This bifurcation may accelerate the divergence between traditional finance’s cautious approach and crypto-native institutions’ more aggressive strategies. We’ll likely see innovation in crypto ETN structures that offer more nuanced exposure beyond simple spot tracking, potentially incorporating DeFi yield or tokenized real-world assets to appeal to institutional mandates.
RichSilo Verdict
The FCA’s move represents a critical inflection point where traditional finance begrudgingly accepts crypto’s role in institutional portfolios, but under strict parameters. Smart money should monitor how traditional fund managers implement these allocations—whether as token gestures or substantive commitments. The real alpha opportunity lies in identifying the specialized financial products that will emerge to bridge the gap between traditional fund structures and the broader crypto ecosystem, particularly those offering compliant exposure to digital assets beyond the established blue chips.
