UK FCA Proposes 10% Allocation to Crypto ETNs in Digital Asset Push

The United Kingdom is taking a major step in bolstering the mainstream adoption of crypto. Under a new crypto ETN proposal, the Financial Conduct Authority (FCA) is planning to allow retail funds to invest up to 10% of their assets in crypto products.

Notably, the financial regulator’s strategic move opens new opportunities for everyday investors. The crypto ETNs may give indirect exposure to virtual assets through regulated funds.

UK eyes crypto ETN allocation for retail funds

The latest reports reveal that the UK’s financial regulator, FCA, has unveiled a new crypto proposal as part of the country’s digital asset push. The FCA is considering a plan to allow retail investment funds to invest up to 10% of their holdings in crypto exchange-traded notes (ETNs).

Source: FCA

The proposal would be applicable to UCITS funds. It would also be applied to most retail-focused non-UCITS funds. As per the regulator’s guidelines, there are different rules for professional and institutional investors.

Specifically, funds focused on professional and institutional investors would not be subject to a limit on crypto ETN investments. At the same time, these funds and their crypto products would not be available to retail investors. In addition, the regulator is also not likely to allow property-focused and other long-term investment funds to invest in crypto ETNs.  

It is worth noting that the 10% cap is intentionally cautious. As noted by the FCA, the cautious stance highlights the speculative nature of cryptocurrencies. The regulators believe that digital assets are not suitable for large allocations in retail funds. The FCA cautioned that "significant exposure" to digital assets is unnecessary due to “the speculative nature of the underlying cryptoassets.”

UK expands regulatory push for crypto adoption

This crypto ETN allocation could also boost confidence among institutional investors, thus driving demand. Broader participation from both retail and institutional investors could enhance market liquidity, thereby fostering the growth of crypto investment products.

If this proposal gets finalized, UK-based UCITS funds can invest in crypto ETNs listed on regulated exchanges. This helps retail investors access to digital assets without requiring direct ownership.

Interestingly, the move comes as part of the UK’s broader effort to establish a clear regulatory framework for the crypto industry. Over the past few months, the regulators have been introducing comprehensive rules to foster market growth. While the country is taking initiatives to encourage mainstream adoption, the latest move is expected to contribute more.

Global markets embrace crypto ETNs

The latest development within the UK crypto market comes in line with a broader trend across Europe. Other countries like Germany, Switzerland, and the Netherlands have also introduced bills to support crypto ETN exposure to retail investors.

But countries like Russia are still restrictive on crypto ETNs. Recently, the Central Bank of Russia introduced limitations for crypto access for retail investors. From July 1, non-professional investors will be allowed only to trade Bitcoin, Ethereum, and USDT. They will be restricted from accessing other crypto assets.