The UK’s Financial Conduct Authority has proposed allowing authorized retail investment funds to hold up to 10% of their portfolio in crypto exchange-traded notes. This move aims to align regulations after the FCA lifted a ban on retail crypto ETNs last year and would grant mainstream funds limited exposure to digital assets.
The Financial Conduct Authority has proposed permitting some authorized retail investment funds to allocate up to 10% of their holdings to crypto exchange-traded notes. This quarterly consultation paper seeks to close a regulatory gap created when the FCA allowed direct retail trading of crypto ETNs in August.
The regulator stated it wants funds to “remain contemporary and consistent with the demands of investors” while ensuring consumer protection. It proposed the 10% cap to “set conservative restrictions on assets to which a fund can be exposed.”
The FCA does not believe significant crypto exposure is appropriate for retail funds due to the assets’ speculative nature. Funds must also demonstrate that any crypto investment aligns with their disclosed objectives and risk profile.
Unregulated and qualified investor schemes face no such limit but cannot be marketed to retail investors. The FCA is also consulting on whether to prohibit funds focused on long-term assets like property from holding crypto ETNs.
The consultation period for this proposal will last five weeks, ending on July 13. This initiative is part of broader UK efforts to establish clearer crypto rules.
The Bank of England recently said it was reconsidering parts of its proposed stablecoin regime following industry feedback. The FCA has also created new rules for tokenized funds and sought guidance on stablecoin issuance, trading, custody, and staking.
