FCA floats 10% limit on retail funds' crypto exposure via ETNs
The UK's Financial Conduct Authority (FCA) is consulting on a proposal that would allow authorised retail-oriented investment funds to take limited crypto exposure, setting a 10% ceiling on allocations to crypto exchange-traded notes (ETNs) for eligible UCITS funds and certain non-UCITS vehicles.
The regulator says the approach is intended to narrow a perceived mismatch between what retail investors can access directly and what regulated funds can hold, while keeping investor protections and market integrity intact. The proposal is set out in the FCA's quarterly consultation paper and follows the FCA's August move to lift the ban on retail trading of crypto ETNs.
Under the plan, retail-focused funds would need to show that any crypto ETN holdings fit their stated investment objectives and are consistent with disclosed risk profiles. The FCA describes the 10% cap as a conservative safeguard designed to allow managers to offer a measured level of crypto exposure without weakening risk controls.
The FCA reiterates that it does not view substantial crypto allocations as appropriate for retail-targeted funds given the speculative nature of the asset class. It also draws a distinction between retail products and vehicles aimed at sophisticated investors: unregulated funds and qualified investor schemes could take on more speculative exposures and would not be subject to the 10% limit, but they cannot be marketed or sold to retail investors.
The regulator also flags that funds built around long-term or less liquid assets, such as property, may face additional limits if they are targeted at retail investors, on the basis that crypto exposure may not align with their objectives.
The consultation is open for five weeks and closes on July 13. Alongside the ETN proposal, the FCA is asking for views on whether long-term asset funds should be barred from crypto exposure and how best to ensure fund holdings remain aligned with mandate-level disclosures.
The consultation sits within a wider UK policy programme on crypto, including parallel work on stablecoins, custody and staking being developed by the FCA and the Bank of England. The Bank of England has indicated it is reconsidering elements of its proposed stablecoin regime following industry feedback, as authorities seek a more cohesive framework covering licensing, oversight and consumer protections. The FCA also notes the cross-border dimension, including ongoing discussions about alignment with international regimes such as the EU's MiCA.
Key points:
- The FCA proposes a 10% cap on crypto exposure for retail-focused UCITS funds and certain non-UCITS funds, using crypto ETNs as the permitted route.
- Retail funds would need to evidence consistency with stated objectives and risk profiles; larger crypto allocations remain discouraged due to volatility and speculation risk.
- Unregulated and qualified investor schemes could take higher-risk exposures without the cap, but cannot be sold to retail investors.
- Funds focused on long-term assets (e.g., property) may face extra restrictions if crypto exposure conflicts with their mandates.
- The consultation runs for five weeks, with a deadline of July 13, against a broader UK push to modernise rules for stablecoins, custody and staking.
