FCA Proposes New Investment Guidelines for Cryptocurrency
The UK’s Financial Conduct Authority (FCA) is advancing proposals that would allow certain investment funds to invest a maximum of 10% of their total assets in cryptocurrency exchange-traded notes (ETNs), while prohibiting direct ownership of cryptocurrencies. This initiative is detailed in the FCA’s latest quarterly consultation paper, marking a significant shift for investment structures like UCITS and various non-UCITS retail funds.
Consultation Period and Objectives
The FCA has opened a consultation period lasting five weeks, during which stakeholders can provide feedback until July 13. By introducing a cap on cryptocurrency investments, the FCA aims to safeguard authorized funds from potential reclassification that could arise from larger crypto allocations, which might categorize them as restricted mass-market investments, thus imposing stricter regulations on funds marketed to retail investors.
Investment Strategy and Disclosure Requirements
To ensure that the investment strategy aligns with the fund’s objectives, portfolio managers will need to illustrate how their crypto ETN allocations fit within the overall risk profile. If funds decide to hold more than a negligible amount of crypto ETNs, this must be transparently disclosed as a vital component of their investment strategy.
Eligibility and Restrictions
Under this proposal, authorized funds can invest in crypto ETNs listed on established UK exchanges or approved European Union markets that meet pre-existing eligibility criteria. However, the FCA maintains its stance on direct cryptocurrency holdings, currently ruling out the possibility for authorized funds to possess cryptocurrencies directly. The regulator plans to reassess this position in the future, particularly as it evaluates the implications of forthcoming crypto regulations and protections for client assets in the UK.
Impact on Different Investment Vehicles
Notably, the proposed rules will not apply uniformly across all investment vehicles. Schemes aimed at professional and sophisticated investors, referred to as qualified investor schemes, will not face the 10% allocation ceiling. Conversely, long-term asset funds and non-UCITS retail schemes structured as alternative investment funds will still be barred from holding crypto ETNs.
Industry Reactions
In reaction to the FCA’s proposals, Jon Allen, who leads innovation and operations at the Investment Association, expressed approval of the regulated landscape this initiative aims to provide. He emphasized that allowing funds to obtain crypto exposure through regulated ETNs is an evolution that aligns with both innovation and known regulations.
Access to Crypto ETNs
Encouraged by these changes, many in the industry have sought clarity on the investment landscape since the previous year. Recent dialogues highlighted frustrations regarding individuals’ ability to access crypto ETNs while many regulated funds could not partake. The FCA had previously lifted a long-standing ban on retail access to crypto ETNs in 2025, enabling individual investors to engage with these products after a four-year hiatus, which subsequently led to significant issuers like 21Shares and Bitwise listing new ETNs on the London Stock Exchange.
Recent Developments in Crypto ETNs
Moreover, the launch of crypto ETNs by fintech firm Stratiphy this past April provided investors with a tax-efficient channel to invest, following modifications that limited new purchases via standard stocks-and-shares ISAs. Currently, while platforms such as Interactive Investor and Revolut offer crypto ETNs, they do not facilitate Innovative Finance ISA access, and investments held through IF ISAs do not enjoy the protections offered by the UK’s Financial Services Compensation Scheme.
