FCA proposes 10% cap on crypto ETNs in UK retail funds

The Financial Conduct Authority proposed allowing UK UCITS and most non‑UCITS retail schemes to hold crypto exchange‑traded notes, capped at 10% of scheme property, while continuing to exclude direct holdings of cryptoassets for investment purposes. The proposal is set out in consultation paper CP26/17, with responses on the fund chapter due by July 13, 2026.

Under the proposal, authorized fund managers could include transferable securities that are crypto ETNs as a capped sleeve within a fund. The 10% limit applies at the scheme‑property level, meaning up to 10% of a fund’s assets could consist of listed crypto ETNs while the underlying coins remain outside the fund’s holdings.

The FCA drew a distinction between fund types. UK UCITS schemes and most non‑UCITS retail schemes would be able to use the permission. Qualified investor schemes aimed at professional clients would not be subject to the same retail cap. The consultation proposes a prohibition on crypto ETN holdings for long‑term asset funds and non‑UCITS retail schemes operating as funds of alternative investment funds, and asks for views on that proposed treatment.

The proposal follows the regulator’s earlier decision, effective Oct. 8, 2025, to allow retail access to crypto ETNs traded on UK recognized investment exchanges. Retail crypto ETNs remain classified as high risk, are outside Financial Services Compensation Scheme coverage, and the ban on retail cryptoasset derivatives remains in place.

The consultation sets out expectations for fund managers. Managers should have adequate knowledge of crypto ETNs and linked cryptoassets, perform due diligence on issuers and market liquidity, and monitor compliance with a fund’s objective, strategy, risk limits and liquidity profile. UCITS managers would need to include a prominent volatility statement where a fund has, or is likely to have, higher net asset value volatility. Consumer‑facing materials must explain any crypto ETN exposure and preserve the fund’s retail character.

The FCA highlighted liquidity risk and stressed‑market scenarios, asking managers to test whether crypto ETNs and underlying markets will remain tradable under stress. Managers should assess ETN holdings against other higher‑risk assets in the portfolio, indirect crypto exposure through other funds, and assets that may be correlated with crypto markets, such as cryptoasset treasury issuers.

How widely the permission is used will depend on practical factors. Managers, platforms, depositaries and distributors must weigh governance, disclosure, suitability and reputational implications before adding a crypto ETN sleeve. If implemented, the rule would permit regulated managers to include a limited, disclosed form of crypto exposure in retail funds while keeping direct custody of underlying coins outside authorized fund portfolios. The consultation will determine final policy and industry uptake.