The UK's Financial Conduct Authority has proposed allowing some authorized investment funds to allocate up to 10% of their assets in crypto exchange-traded notes, a move that would close a regulatory gap between what retail investors and the funds that serve them are permitted to hold.

The regulator outlined the proposal in a quarterly consultation paper published on Friday, June 6. Under the framework, retail-focused funds known as undertakings for collective investment in transferable securities, or UCITS, as well as certain non-UCITS funds, would be eligible to gain limited exposure to digital assets for the first time.

Conservative Cap Designed to Protect Retail Investors

The FCA said it wanted authorized funds to remain contemporary and consistent with investor demands while ensuring that consumers are adequately protected and markets function well. The 10% cap, the regulator explained, would set conservative restrictions on assets to which a fund can be exposed, in exchange for allowing such funds to be marketed to retail consumers.

The FCA added that it did not believe it appropriate for retail-focused funds to carry significant exposure to crypto products, citing the speculative nature of the underlying digital assets. Any retail fund seeking crypto exposure must demonstrate that the investment is consistent with its disclosed investment objectives and risk profile.

Aligning Rules After Retail Crypto ETN Access Was Granted

The proposal follows the FCA's decision in August 2025 to lift its long-standing ban on retail investors trading crypto exchange-traded notes. That change allowed individual investors direct access to such products but left fund-level access unaddressed, creating an inconsistency in the regulatory framework. The current consultation aims to resolve that gap.

Unregulated and qualified investor schemes would face no limit on crypto holdings under the proposal, but the FCA confirmed those vehicles cannot be marketed or sold to retail investors. The regulator is also seeking feedback on whether funds designed to hold long-term assets, such as real estate, should be prevented from holding crypto ETNs at all, on the grounds that digital assets are inconsistent with such funds' investment objectives.

Part of a Broader UK Push to Regulate Crypto Markets

The fund proposal is part of an accelerating effort by UK authorities to establish a comprehensive regulatory regime for digital assets. The FCA and the Bank of England are currently consulting on proposed rules covering stablecoins, crypto custody, and staking services.

The Bank of England said last month it was reconsidering elements of its proposed stablecoin regime following industry feedback that proposed holding caps and reserve requirements could restrict adoption. In April, the FCA introduced new rules for tokenized funds to simplify the use of blockchain technology by asset managers and launched a separate consultation on guidance for stablecoin issuance, trading, custody, and staking. The consultation on the retail fund crypto exposure proposal closes on July 13.