UK regulator proposes retail fund crypto exposure cap

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UK retail fund crypto cap

Highlights

FCA proposes a 10% cap on retail UCITS and some non-UCITS funds' exposure to crypto exchange-traded notes, with consultation open until July 13.
Proposal follows the FCA's August move lifting its ban on retail trading of crypto exchange-traded notes, further aligning fund and direct investor access.
Broader UK regulatory expansion includes recent April rules on tokenized funds and ongoing consultations on stablecoins, crypto custody, and staking.

Consultation outlines 10% limit

As reported by the Cointelegraph, the proposal appears in a quarterly consultation paper published on Friday and would allow UCITS funds and some non-UCITS retail funds to gain limited exposure to crypto exchange-traded notes.

The FCA says the change is meant to keep authorized funds contemporary and aligned with investor demand, while ensuring consumers remain adequately protected and markets function well. It adds that the 10% ceiling is a conservative restriction designed to permit retail marketing without allowing heavy exposure to speculative cryptoassets.

The regulator says any fund investing in crypto products must show that such holdings are consistent with its disclosed investment objectives and risk profile. It also proposes no equivalent cap for unregulated and qualified investor schemes, which may invest in more speculative assets but cannot be marketed or sold to retail investors.

The consultation runs for five weeks, until July 13. The FCA is also seeking views on whether long-term asset funds, including property-focused vehicles and some other retail-oriented products, should be barred from holding crypto exchange-traded notes because such assets may not fit their stated objectives.

Broader UK crypto rulemaking expands

The proposal follows the FCA's August decision to lift its ban on retail investors trading crypto exchange-traded notes, narrowing the gap between direct retail access and fund-level access to the same products.

It also fits into a broader UK push to develop a fuller regulatory regime for digital assets. The FCA and the Bank of England are consulting on rules for stablecoins, crypto custody and staking, while the central bank said last month it is reconsidering parts of its stablecoin framework after industry warnings that reserve requirements and holding caps could curb adoption.

In April, the FCA introduced new rules for tokenized funds aimed at making it easier for asset managers to use blockchain-based structures. It also sought feedback on guidance covering stablecoin issuance, crypto trading, custody and staking, signaling that the UK's digital asset rulebook is still being actively built out.

Our earlier article on CFTC oversight of prediction markets and parts of the crypto sector examined Senator Elizabeth Warren’s push for answers about whether the agency can still police fast-growing digital-asset activity effectively. It highlighted concerns about staffing cuts, reduced enforcement, and allegations of political influence that could weaken investor protection and market integrity as lawmakers debate changes to crypto safeguards.

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