The United Kingdom’s Financial Conduct Authority (FCA) has published its quarterly consultation paper, which includes a proposal to allow authorized investment funds to hold up to 10% of their scheme property in crypto-exchange traded notes (cETNs).
Once a quarter, the FCA consults on proposed miscellaneous amendments to its Handbook. The proposed changes to cETNs rules form part of the regulator’s latest quarterly consultation paper, published June 6, on which market participants and interested parties have until July 13 to provide feedback.
Since August 2025, individual retail investors have been able to buy qualifying cETNs directly through eligible investment platforms. However, authorized funds—specifically ‘Undertaking for Collective Investment in Transferable Securities (UCITS) schemes’ or FCA-authorized retail funds following strict diversification, liquidity and investor-protection rule and ‘non-UCITS retail schemes’ (NURS) or funds with greater investment flexibility that do not comply with all the conditions to which UCITS are subject—remained unable to invest in them because the FCA fund rules did not permit it.
In other words, up to now, retail investors could buy cETNs themselves, but authorized funds could not include them in diversified fund portfolios. This is what the FCA is proposing to change.
“As the regulatory regime for cETNs has developed, and to ensure greater consistency in the regulatory treatment across products, we believe it is appropriate to clarify whether authorised funds can invest in cETNs,” the FCA said. “We want the range of investments for authorised funds to remain contemporary and consistent with the demands of investors in a diversified product with professional investment and risk management.”
It added that “we also want to create the right environment for U.K. firms to grow and innovate, while ensuring consumers are adequately protected and markets function well.”
According to the regulator, its proposed change of heart on authorized funds holding cETNs is also a result of the issue being raised in multiple responses to previous consultations on retail access to cETNs, and opening retail access to cETNs in 2025 prompted “renewed questions from fund managers, depositaries and cETN operators” as to whether authorized funds should also have access to the products.
While the proposed change will no doubt be music to the ears of market participants and fund managers who have been pitching it to the FCA for some time, the 10% limit—which the regulator itself described as “conservative”—may be somewhat of a disappointment.
On this, the FCA said it recognized that some firms have called for higher limits but that it did not believe it would be appropriate at the current time “given the speculative nature of the underlying cryptoassets.”
Further, the consultation paper argued that allowing higher levels of exposure to cETNs could require funds to be classified as ‘restricted mass market investments (RMMIs)’ to protect consumers and ensure consistency with financial promotion rules for direct investments in digital assets and cETNs. If classed as RMMIs, the funds would lose many of the regulatory and commercial advantages associated with being a mainstream authorized retail fund.
Beyond exposure limits, the FCA also reiterated that it would not authorize a fund referencing digital assets in its objectives until it had “confidence in the integrity of the underlying market” and that this would not be detrimental to investors.
Digital currency rules incoming
The U.K.’s long wait for a digital asset regulatory framework is nearing an end, with rules set to come into force on October 25, 2027.
To smooth the transition to this upcoming regime, the FCA recently concluded its consultation on new guidance to help firms understand how they might be affected. Specifically, with regard to its interpretation of qualifying digital currencies, issuing qualifying stablecoins, operating trade platforms, dealing in and arranging deals with qualifying and safeguarding digital currencies, and staking.
The consultation, titled “cryptoasset perimeter guidance,” ran until June 3, 2026, and was the latest in a series aimed at shaping the future regime. Over the past few years, the FCA consulted on stablecoin issuance and digital currency custody, prudential rules, the application of the FCA Handbook, regulating digital currency activities, and admissions, disclosures, and market abuse.
Based on feedback from these previous consultations, the regulator is now finalizing these rules, which are due to be published this summer. After that, digital asset firms can start applying for authorization from September 30 onwards.
The FCA’s proposed regime aims to bring a broad range of digital currency activities within the U.K. regulatory perimeter. Key features include mandatory authorization for firms, prudential capital and governance requirements, and strengthened operational resilience standards. conduct rules covering custody, segregation of client assets, market abuse prevention, and disclosure requirements for issuers. For stablecoin issuers, there will be, amongst other mandates, requirements to comply with new backing, redemption, and safeguarding rules.
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