The UK Financial Conduct Authority is considering a rule that would allow UCITS funds and most non-UCITS retail schemes to hold crypto exchange-traded notes, up to a maximum of 10% of the fund’s ownership.
The proposal, set out in the FCAs CP26/17 consultationwould bring cryptocurrency exposure deeper into regulated funds. Retail investors have already found a route to crypto ETNs as standalone exchange products.
The new question is how far these notes can travel within diversified portfolios managed by authorized fund managers.
The answer is a short line. The FCA would allow a limited ETN cover if it suits the fund’s stated objective and risk profile.
Direct ownership of Bitcoin, Ether or other crypto assets for investment purposes remains outside the proposal. Comments on the fund chapter are due July 13, 2026.
What the cap would allow
The proposed rule would give UK UCITS systems and, with exceptions, non-UCITS retail systems, a limited allocation channel. The limit would apply at the fund asset level, meaning that up to 10% of a fund’s assets could consist of transferable securities that are cryptoasset ETNs.
That threshold allows exposure while remaining secondary. A balanced multi-asset fund could use the permission as a satellite allocation.
A fund marketed as a conventional retail portfolio would still fall within the framework of authorized retail funds, with cryptocurrency exposure limited via the ETN wrapper and percentage cap.
The FCA also draws lines between fund types. Qualified investor programs, which are marketed to professional clients and sophisticated investors, are outside the same proposed limit for retail funds.
Long-term asset funds and NURS operating as alternative investment funds are facing a proposed ban on crypto ETN holdings, with the FCA seeking views on that treatment.
| Vehicle | Suggested treatment | Implication |
|---|---|---|
| UK UCITS schemes | Can hold cETNs up to 10% of the scheme’s power | Opens a capped route within the portfolios of regular retail funds |
| Most nurses | Can hold cETNs up to 10% of the scheme’s power | Extends the same limited channel beyond UCITS structures |
| Qualified Investor Programs | Outside the suggested limit for retail funds | Reflects their professional and sophisticated investor base |
| LTAFs and NURS operate as FAIFs | Proposed ban on cETN ownership | Signals that some fund packaging may remain outside the channel |
| Instant crypto ownership | Excluded for investment purposes | Keep exposure indirect via listed nuts |
That distinction shapes the proposal: access can be expanded through securities law and fund rules, while the custody of the coins remains outside the fund’s portfolio.
A fund could gain price-linked crypto exposure through a security traded on a regulated platform. The underlying crypto assets would remain outside the investment positions of the authorized fund.
The proposal follows the FCA’s previous decision to open retail access to crypto ETNs traded on UK recognized investment exchanges.
That change, which came into effect on October 8, 2025, gave retail consumers access to cETNs through FCA-approved UK investment exchanges, subject to financial promotion and consumer rights protection rules.
This protection left cETNs in a risk category. The FCA said retail cETNs fall outside the coverage of the Financial Services Compensation Scheme, and the ban on retail crypto asset derivatives remains in place.
The regulator’s position is that the market has evolved sufficiently to allow controlled access, while retaining the ‘high risk’ label for the underlying exposure.
The same logic can be found in the fund proposal. Crypto ETNs have already become a live UK exchange-traded product category, with London Stock Exchange coverage detailing the product segment a year after launch.
With funds, however, the packaging creates a second layer of responsibility. Managers must decide whether a listed bond qualifies and whether the exposure is appropriate for a fund’s objectives, liquidity profile, risk limits and disclosures.
The FCA says fund managers must have sufficient knowledge and understanding of the assets in which a fund invests, carry out due diligence in investment selection and monitor compliance with the fund’s objective, strategy, risk limits and liquidity profile.
It also says managers should consider whether cryptoassets and cETNs will remain liquid under stressful conditions.
The cap is the visible control. Disclosure and liquidity work can determine how useful the consent becomes.
The FCA intends to rely on existing disclosure rules for authorized funds holding cETNs. It refers managers back to rules on fund objectives, investment policies, marketing communications, consumer rights and risk overviews for cryptoassets and cETNs.
It also says UCITS managers should include a prominent volatility statement where a fund has or is likely to have higher volatility in its net asset value.
A manager using the consent must explain the exposure in fund documents and consumer-facing materials, while remaining clear about the character of the product.
A small allocation can still be an essential feature of a strategy if it is more than truly de minimis, as crypto ETNs pose different risks than many conventional transferable securities.
The FCA also asks managers to assess cETN investments in light of the broader portfolio, including other higher risk assets, indirect exposure to crypto through other funds and assets correlated with crypto, such as government bond issuers of crypto assets.
A 10% cETN limit therefore leaves a separate question about the rest of a fund’s crypto-linked market behavior.
For retail investors, the practical effect is that crypto can move closer to the standard portfolio stack, while still maintaining visibility. If the rule is adopted, a fund could include cETNs, with exposure disclosed, monitored and evaluated alongside the rest of the portfolio.
The real adoption test
The proposal creates access; The question still depends on the decision by fund managers, platforms, custodians and distributors that the capped exposure is worth the documentation, governance and suitability work.
One path is meaningful, limited adoption. Managers could use cETNs as a small allocation tool within diversified funds.
In that case, the FCA’s rule would mark a real shift: crypto exposure would move beyond a standalone retail decision or a product for professional investors and become something that a mainstream fund could encompass with risk management around it.
Another path is largely symbolic. Managers may decide that the 10% limit, disclosure requirements, liquidity issues and reputational risk outweigh the benefits.
Consent would remain a bridge that few products cross, creating a policy change with a modest allocation footprint.
Therefore, the proposal is best read as a step-by-step normalization of the crypto market structure rather than a broad portfolio opening.
The FCA accepts that crypto ETNs are sufficiently established to enter some authorized funds, while still trying to prevent the exposure from becoming a dominant retail portfolio risk.
The next signal is the behavior of the allocator, submission of updates and platform documentation.
UK asset managers will either rewrite prospectuses, product summaries and platform materials to make room for cETNs after the consultation closes, or the 10% cap will act mainly as a symbolic bridge. Until then, crypto can move within the fund wrapper while remaining on the short side.