The U.K. Financial Conduct Authority (FCA) has proposed allowing authorized retail investment funds to allocate up to 10% of their assets into crypto-backed exchange-traded notes (ETNs). This move, detailed in the regulator’s Quarterly Consultation Paper (CP24/24), seeks to integrate digital assets into standard retail portfolios while maintaining strict oversight of systemic risks.
Why the FCA is proposing a 10% limit
The FCA intends to restrict exposure to crypto ETNs to 10% of a fund’s net asset value to prevent excessive volatility from impacting retail investors. According to the consultation paper, this cap applies to Undertakings for Collective Investment in Transferable Securities (UCITS) and certain Non-UCITS Retail Schemes (NURS). By setting this threshold, the regulator aims to balance the demand for digital asset exposure with the need for prudential risk management in open-ended, collective investment vehicles.
What are UCITS and NURS?
UCITS are highly regulated, standardized investment funds popular across Europe and the U.K. that allow for cross-border distribution. NURS are domestic U.K. funds that generally have more flexibility in their investment strategies than UCITS but remain subject to FCA rules regarding diversification and liquidity. Currently, these funds are typically restricted from holding direct crypto assets or products tied to them due to concerns over valuation complexity and market integrity.
How this changes the U.K. crypto landscape
This proposal represents a shift in the U.K.’s regulatory stance on digital assets. In March 2024, the FCA permitted recognized investment exchanges to launch crypto-backed ETNs specifically for professional investors. The current proposal expands this access to broader retail investment vehicles.
Industry participants have long argued that the U.K.’s previous strict limitations placed British funds at a competitive disadvantage compared to jurisdictions in the European Union or the United States, where spot Bitcoin ETFs have been available to retail investors since early 2024.
Regulatory context and next steps
The FCA’s proposal is part of a broader effort to modernize the U.K. regulatory framework for financial products. The consultation process allows market participants to submit feedback on whether the 10% limit provides sufficient protection or if additional safeguards—such as specific liquidity requirements or investor disclosures—are necessary.
The regulator has not yet set a final implementation date, as the proposal is currently undergoing the standard consultation period. Once the feedback window closes, the FCA will evaluate the responses before finalizing the rules for fund managers.
Summary of proposed changes
| Feature | Current Status | Proposed Status |
|---|---|---|
| Crypto ETN Access | Professional investors only | Inclusion in UCITS and NURS |
| Allocation Limit | N/A | 10% of fund assets |
| Regulatory Oversight | Restricted | Subject to CP24/24 guidelines |
Note: The information above is based on the FCA’s October 2024 consultation paper and is subject to change following the official industry feedback process.