Key Takeaways
- • The FCA is proposing to let UK UCITS and Non-UCITS Retail Schemes (NURS) hold up to 10% of their scheme property in crypto exchange-traded notes (cETNs) that trade on UK recognised investment exchanges or on other eligible EU and global markets.
- • Qualified investor schemes (QIS) face no limit on cETN exposure because they can only be sold to professional and sophisticated investors.
- • Long Term Asset Funds (LTAFs) remain barred from investing in cETNs, as the FCA does not view cryptoassets as consistent with LTAF investment objectives.
- • Retail funds must disclose cETN exposure beyond a genuine de minimis level in their prospectus and marketing documents as part of their investment strategy.
- • The new FCA rules took effect on 26 September 2026, according to Hogan Lovells Cadwalader.
Summary
The UK Financial Conduct Authority has moved to give authorised investment funds more room to invest in crypto exchange-traded notes, according to a legal analysis published by Hogan Lovells Cadwalader and authored by Dominic Hill and Alix Prentice. The changes build on a 2025 decision that lifted the prior ban on retail customers investing in cETNs traded on a UK recognised investment exchange. Before that, the FCA had prohibited the sale, distribution and marketing of certain cETNs to retail customers, reflecting its view that cryptoassets were unsuitable for retail investors due to price volatility, unreliable valuation practices and limited customer understanding.
Even after the 2025 change, FCA fund rules continued to block certain authorised funds, particularly those open to retail customers, from holding cETNs as scheme property. The FCA is now proposing to allow UK UCITS and Non-UCITS Retail Schemes (NURS) to hold up to 10% of their scheme property in cETNs. Eligible holdings include notes traded on UK recognised investment exchanges and notes traded or dealt on other EU and global markets that satisfy the FCA's existing 'eligible markets' tests for authorised fund assets and its broader requirements for fund assets.
The framework differs by fund type. Qualified investor schemes (QIS) will face no limit on cETN exposure, since they can only be sold to professional clients and sophisticated investors. Long Term Asset Funds (LTAFs) will remain prohibited from holding cETNs, as the FCA does not consider cryptoassets consistent with their investment objectives.
The FCA said it will keep monitoring developments in the cryptoasset market, including the applicable percentage limits. For retail-facing UK authorised funds, exposure to cETNs above a genuine de minimis level must be disclosed in the prospectus and relevant marketing documents as part of the fund's investment strategy. The new rules came into effect on 26 September 2026.
Even after the 2025 change, FCA fund rules continued to block certain authorised funds, particularly those open to retail customers, from holding cETNs as scheme property. The FCA is now proposing to allow UK UCITS and Non-UCITS Retail Schemes (NURS) to hold up to 10% of their scheme property in cETNs. Eligible holdings include notes traded on UK recognised investment exchanges and notes traded or dealt on other EU and global markets that satisfy the FCA's existing 'eligible markets' tests for authorised fund assets and its broader requirements for fund assets.
The framework differs by fund type. Qualified investor schemes (QIS) will face no limit on cETN exposure, since they can only be sold to professional clients and sophisticated investors. Long Term Asset Funds (LTAFs) will remain prohibited from holding cETNs, as the FCA does not consider cryptoassets consistent with their investment objectives.
The FCA said it will keep monitoring developments in the cryptoasset market, including the applicable percentage limits. For retail-facing UK authorised funds, exposure to cETNs above a genuine de minimis level must be disclosed in the prospectus and relevant marketing documents as part of the fund's investment strategy. The new rules came into effect on 26 September 2026.
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