The UK Financial Conduct Authority (FCA) has proposed a new plan to allow some authorized UK investment funds to hold cryptocurrency exchange-traded notes (ETNs), but such holdings cannot exceed 10% of the fund's total assets. However, the regulator still does not intend to allow funds to directly hold crypto assets such as Bitcoin.
This arrangement is included in the FCA's latest quarterly consultation document. Under the proposal, UCITS funds, as well as most non-UCITS retail funds, will be able to purchase crypto ETNs under compliant conditions. The regulator has launched a five-week public comment period, with a feedback deadline of July 13.
Retail funds are capped at 10%.
The FCA stated that setting a clear cap on the percentage is to prevent funds from changing their regulatory classification due to excessive exposure to crypto assets. If the allocation is too large, the product may be classified into a restricted investment category for the mass market, triggering stricter sales and compliance requirements.
Fund managers also need to demonstrate that their crypto ETN holdings are consistent with the fund's investment objectives and risk profile. If the relevant exposure is no longer a very small percentage, the fund must also disclose it as an important part of its strategy.
Investment is limited to compliant listed products.
According to the proposal, authorized funds can only invest in crypto ETNs listed on UK-approved exchanges, or in similar products listed in the EU and other markets that meet existing eligibility standards. In other words, regulators are willing to allow regulated exchange-traded products, not direct cryptocurrency holdings.
The FCA has explicitly stated that it is not currently considering allowing authorized funds to directly hold crypto assets. Whether further liberalization will occur will depend on the upcoming crypto asset regulatory framework in the UK and the assessment results following the implementation of client asset protection rules.
This new arrangement does not apply to all funds. The Qualified Investor Program, which targets professional clients and sophisticated investors, does not have a cap on crypto ETN allocations; however, long-term asset funds and non-UCITTS retail funds established as alternative investment funds are still excluded.
The UK cryptocurrency ETN market continues to open up.
This consultation continues the UK's gradual easing of restrictions on the crypto ETN market over the past year. The FCA has already lifted long-standing restrictions on retail investors' access to crypto ETNs in 2025, ending a four-year ban.
In April of this year, fintech company Stratiphy also launched a crypto ETN product through its innovative financial ISA, providing investors with a more tax-efficient allocation channel. The products launched on this platform are issued by 21Shares and cover Bitcoin, Ethereum, and Bitcoin-gold portfolio products.
Currently, platforms such as Interactive Investor, Freetrade, and Revolut offer cryptocurrency ETN trading services, but none offer the Innovative Financial ISA (IF ISA) channel. It's important to note that investments held through an IF ISA are not protected under the UK Financial Services Compensation Scheme.
