UK FCA Proposes 10% Crypto Cap for Retail Funds

The UK’s Financial Conduct Authority (FCA) has proposed allowing retail-focused investment funds to allocate up to 10% of their portfolios to crypto exchange-traded notes (ETNs), marking a cautious step forward in integrating crypto within traditional financial products. The proposal, outlined in a consultation paper published Friday, aims to close a regulatory gap while balancing investor protection and market innovation. The consultation runs until July 13, 2026.

This move builds on the FCA’s August 2025 decision to lift its ban on retail investors trading crypto ETNs, aligning the UK’s approach with other jurisdictions. The FCA notes that the proposed 10% cap would serve as a conservative restriction, ensuring that funds marketed to retail consumers remain consistent with their disclosed objectives and risk profiles. The regulator emphasized, however, that it does not consider significant exposure to crypto appropriate for retail funds, citing the speculative nature of the underlying assets.

The proposal targets authorized retail funds, including UCITS (Undertakings for Collective Investment in Transferable Securities) and certain non-UCITS funds. However, unregulated or qualified investor schemes—typically marketed to institutional or high-net-worth clients—would face no such caps but remain off-limits to retail investors. The FCA is also seeking feedback on whether long-term asset funds, such as those focused on property, should be excluded from crypto investments altogether, questioning the compatibility with their stated objectives.

This consultation is part of the UK’s broader effort to establish itself as a regulated yet innovation-friendly crypto hub. Since 2023, the UK has been rolling out a phased regulatory framework for cryptoassets, following the passage of the Financial Services and Markets Act. The framework encompasses trading, custody, stablecoins, and promotions, with measures like the ‘Travel Rule’ for anti-money laundering compliance already in place. Notably, the FCA has been actively refining rules for stablecoins and tokenized assets, including consultations on custody requirements and market disclosures, as recently as May 2025.

For crypto market participants, the FCA’s cautious approach underscores both opportunities and limitations. A 10% allocation cap provides a foothold for crypto products within retail portfolios, potentially broadening institutional inflows into the asset class via regulated channels. However, the restrictions reflect the FCA’s wariness of speculative risks, signaling that crypto’s path to mainstream acceptance in the UK will likely remain measured and tightly controlled.

The UK’s evolving regulatory landscape comes at a time when global markets are scrutinizing the integration of crypto within traditional finance. The Bank of England recently reconsidered its proposed rules for stablecoins after industry backlash, and the FCA introduced guidelines to facilitate tokenized funds. Yet, these moves coexist with strict consumer protection measures, such as the October 2023 financial promotions regime requiring FCA approval for marketing crypto to UK consumers.

Market stakeholders have until mid-July to provide feedback on the FCA’s latest proposal. Whether the 10% cap will strike the right balance between fostering innovation and safeguarding retail investors remains to be seen, but it’s clear that the UK is committed to shaping a regulated and structured crypto market.

Image source: Shutterstock