UK FCA Proposes Letting Authorized Funds Hold Crypto ETNs Under Strict Limits

The UK Financial Conduct Authority has proposed allowing authorized funds to hold cryptoasset exchange-traded notes for the first time, subject to a 10% exposure cap and other strict conditions laid out in consultation paper CP26/17.

What the FCA is proposing for authorized funds

Cryptoasset ETNs are debt securities listed on regulated exchanges that track the price of underlying cryptocurrencies like Bitcoin or Ethereum. Under the current framework, UK authorized funds cannot hold them.

The FCA’s CP26/17 consultation paper proposes changing that by allowing two categories of authorized funds, UCITS schemes and non-UCITS retail schemes (NURS), to gain indirect crypto exposure through these listed instruments. The measure is a proposal, not a finalized rule.

“Authorized funds” in this context refers to collective investment schemes authorized by the FCA and available to retail investors. The regulator is explicitly not considering allowing these funds to hold cryptoassets directly for investment purposes.

The strict limits the FCA wants in place

The central guardrail is a proposed cap limiting cryptoasset ETN exposure to 10% of scheme property for both UCITS schemes and NURS.

Qualified investor schemes (QIS), which serve sophisticated and institutional investors, would face no such cap. However, the FCA proposes to prohibit long-term asset funds (LTAFs) and NURS operating as feeder authorized investment funds (FAIFs) from holding cETNs entirely.

The proposal distinguishes fund-level access from unrestricted retail access. Individual retail investors gained the ability to buy crypto ETNs directly following the FCA’s October 2025 rule change. This new consultation addresses whether professionally managed pooled vehicles should also participate.

One detail that competing coverage has largely missed: CP26/17 section 5.12 specifies that authorized funds could hold cETNs traded not only on UK recognized investment exchanges but also on EU and global markets that satisfy the FCA’s existing eligible-markets criteria.

Responses to chapters 2 through 7 of CP26/17, including the crypto ETN chapter, are due by 13 July 2026.

What the proposal could mean for UK crypto investment products

If adopted, the rules would expand the set of regulated vehicles with crypto-linked exposure. Fund managers running UCITS or NURS products would be able to allocate a small slice of their portfolios to listed crypto ETNs, giving retail fund investors indirect access to digital asset performance without holding tokens directly.

The immediate beneficiaries would be fund issuers and regulated product providers. Asset managers could differentiate their offerings by adding capped crypto exposure, potentially attracting investors who want digital asset participation within a familiar, FCA-supervised wrapper. The move follows a pattern seen in the United States, where major crypto firms have pushed legislators to formalize regulatory frameworks for digital asset products.

The practical timeline remains uncertain. Final rules depend on consultation feedback, and fund managers would need operational infrastructure for cETN custody, valuation, and risk monitoring before any allocation could begin.

The FCA’s trajectory tells a clear story of incremental opening. It banned retail crypto derivative sales in January 2021, allowed professional-investor cETN trading in March 2024, reopened retail access in October 2025, and now proposes controlled fund-level participation. Each step has come with tighter guardrails than the last, a pattern consistent with how institutional players like Strategy have steadily increased Bitcoin holdings within their own risk frameworks.

Bitcoin traded at $63,358 at the time of publication, while the broader crypto market registers an Extreme Fear reading of 8 on the Fear and Greed Index. The subdued sentiment has not slowed institutional momentum, with Strategy recently adding 1,550 BTC to its treasury even as retail confidence wavers.

Whether the FCA finalizes these rules as proposed will depend on industry feedback before the July deadline. What is already clear is that the UK regulator views indirect, capped exposure through listed instruments as the acceptable path forward, not direct crypto holdings in authorized funds.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency and digital asset markets carry significant risk. Always do your own research before making decisions.