The United Kingdom's Financial Conduct Authority (FCA) has unveiled a proposal that would allow authorized mutual funds to allocate up to 10% of their portfolios to crypto exchange-traded notes (ETNs), potentially expanding institutional access to digital assets while maintaining strict risk controls.
The proposal forms part of the regulator's latest quarterly consultation paper and represents another significant milestone in the UK's evolving crypto strategy. If approved, the changes would allow mainstream investment funds to gain regulated crypto exposure without holding digital assets directly.
FCA Seeks Balanced Approach to Crypto Investing
The proposal would permit UCITS funds and most non-UCITS retail investment schemes to invest a limited portion of their assets in crypto ETNs, products that track the price of cryptocurrencies while trading on regulated stock exchanges.
The FCA has intentionally set a 10% allocation limit, arguing that larger exposure could fundamentally change the nature of these investment products and potentially increase risks for retail investors. Under the proposal, qualified investor schemes aimed at professional investors would face no allocation limits, while certain alternative investment structures, including long-term asset funds, would remain prohibited from holding crypto ETNs altogether.
The regulator emphasized that direct ownership of cryptocurrencies by authorized funds remains off the table for now, with the current proposal focusing exclusively on exchange-traded products operating within regulated financial markets.
Industry Welcomes the Regulatory Shift
The proposal has already received support from parts of the UK's asset management industry. John Allan, Director of the Innovation and Operations Unit at the Investment Association, described the initiative as a practical step that balances innovation with investor protection.
Industry participants argue that listed crypto ETNs provide investors with a far safer and more transparent method of gaining digital asset exposure compared to unregulated platforms or direct token ownership.
Fund managers would still need to demonstrate that any crypto allocation aligns with a fund's investment objectives and risk profile while clearly disclosing any meaningful exposure to investors.
UK Continues Expanding Crypto Investment Access
The latest consultation follows a series of crypto-friendly regulatory changes introduced over the past year.
In 2025, the FCA lifted its long-standing ban on retail investors purchasing crypto ETNs, allowing firms such as BlackRock, WisdomTree, Bitwise, and 21Shares to launch physically backed Bitcoin and Ethereum products on the London Stock Exchange.
Earlier this year, UK investors also gained tax-efficient access to crypto ETNs through the Innovative Finance ISA framework, further integrating digital assets into traditional investment products.
The new proposal would extend that accessibility to mutual funds, allowing portfolio managers to incorporate regulated crypto exposure alongside conventional assets such as equities and bonds.
Consultation Opens the Door for Wider Institutional Adoption
The FCA's consultation will remain open until July 13, giving industry participants the opportunity to provide feedback before any final rules are adopted.
While the regulator remains cautious about allowing funds to directly custody cryptocurrencies, the proposal highlights the UK's increasingly open stance toward digital assets as policymakers seek to foster innovation without compromising investor protection.
If implemented, the framework could further strengthen London's position as one of Europe's leading regulated crypto investment hubs, providing traditional fund managers with a new way to participate in the growing digital asset economy.
