FCA proposes allowing UK UCITS access to Crypto Exchange Traded Notes

In Quarterly Consultation No 52 - CP26/17 (the CP), published in June 2026, the FCA set out proposals (among other things):

• to allow UK UCITS schemes and NURS (other than those operating as FAIFs) to hold up to 10% of scheme property in exchange traded notes referencing cryptoassets (cETNs) where such holdings would be consistent with the given fund’s disclosed investment objectives and risk profile.
• not to apply a limit to holdings within QIS, as these can only be sold to professional clients and sophisticated investors.

The CP also seeks views on whether LTAFs and NURS operating as FAIFs should (as the CP proposes) be prohibited from holding cETNs with the FCA considering that cryptocurrencies are not consistent with the investment objectives of such products.

The consultation period for CP26/17 ended on 13 July 2026 - we will be tracking this topic and will provide a further update when the final rules are published.

Background to the proposals

Technically, UK UCITS schemes and Non-UCITS Retail Schemes (NURS) are already permitted to invest in:

• transferable securities backed by ineligible assets (such as cryptoassets) and
• cETN securities that meet the FCA’s tests for transferable securities.

Unregulated funds and QIS (Qualified Investor Schemes), on the other hand, can invest in more speculative assets but cannot be mass-marketed to retail investors.

The FCA is now consulting on whether it should be clarified that UK UCITS and NURS can invest in cETNs, so the range of investments they offer remains consistent with investor demands, while creating the right environment for UK firms to grow and innovate.

What does the CP propose?

(a) Exposure of UK UCITS schemes and NURS to cETNs

The FCA does not believe that UK UCITS schemes and NURS should be allowed significant exposure to cETNs, where this could result in such funds needing to be classified as RMMIs in order to ensure consistency with (i) financial promotion rules for direct investments in cryptoassets and cETNs and (ii) the status of UK UCITS and retail authorised funds as a brand.

As a result, the CP proposes that exposure within UK UCITS schemes and NURS be limited to 10% of the value of scheme property. The cETNs would need to be:

• traded on UK RIEs and
• traded or dealt on other EU and global markets that comply with our existing ‘eligible markets’ tests for fund assets.

(b) Due diligence and disclosure requirements

The consultation sets out FCA expectations on the application of due diligence and disclosure requirements to authorised funds holding cETNs. The manager of an authorised fund must:

• have adequate knowledge and understanding of the assets in which the fund invests
• conduct due diligence on the selection of investments (including ensuring that any investment decision is made in compliance with the objectives, strategy and risk limits of the fund, including its liquidity risk profile) and monitor this on an ongoing basis and
• ensure that the property of a UCITS scheme or NURS provides a prudent spread of risk, taking into account the fund’s investment objectives and policies.

This assessment requires consideration of a holding or proposed holding in a cETN against the fund’s broader portfolio (including holdings in other higher-risk assets, indirect exposure to cryptoassets via investments in other funds, and assets with correlation to cryptoassets). Whilst cETNs are liquid, the manager must consider whether this will always be the case in stressed scenarios.

Since the level of exposure being proposed is limited, the CP does not propose prescribing a risk warning for authorised funds holding cETNs.

The CP also notes that COBS 4.13.2R(4) requires a UCITS scheme manager to ensure that the scheme’s marketing communications draw attention, through a include a prominent statement, to the fact where the scheme has (or is likely to have) higher volatility in its NAV.

An authorised fund’s prospectus must set out in detail the fund’s investment objective and policy, including any intended specialisation, and the fund can only hold cETNs where this is consistent with the objective and policy. The FCA believes that possible, or intended, exposure to cETNs beyond a genuine de minimis level would constitute a relevant feature of a UCITS scheme’s or NURS’s strategy.

Direct investment in cryptoassets by authorised funds

The FCA’s proposals do not include allowing authorised funds to hold cryptoassets directly (as opposed to via an ETN) for investment purposes – this position will not change at least until the FCA has looked at what impact the incoming cryptoasset regulatory regime has on authorised funds, including the rules on safeguarding client cryptoassets.

The FCA notes that it discusses the use of stablecoins and cryptocurrencies in authorised funds for non-investment purposes (including settlement of fund unit deals and payment of transaction charges on public networks) in PS26/7, Progressing Fund Tokenisation.

The related consultation (CP25/28) also addressed the treatment of tokenised collateral under UK EMIR. The FCA confirmed that UK EMIR does not distinguish between tokenised and conventional financial instruments when determining eligibility of particular instruments for collateral regulation purposes.