Britain's FCA Considers Permitting Retail Investment Funds to Hold Up to 10% in Cryptocurrency
Britain's Financial Conduct Authority is proposing to permit retail investment funds to maintain limited cryptocurrency holdings, provided such exposure matches their "disclosed investment objectives."
Britain's Financial Conduct Authority has put forward a proposal that would permit certain authorized investment funds to maintain cryptocurrency exchange-traded note allocations of up to 10%, effectively bridging a regulatory divide that exists between retail investors and investment funds.
The financial regulator introduced this concept through a quarterly consultation paper released on Friday, which would enable retail-oriented investment vehicles known as undertakings for collective investment in transferable securities, or UCITS funds, along with certain non-UCITS funds to obtain cryptocurrency exposure.
According to the regulator, its goal was to ensure that authorized funds "remain contemporary and consistent with the demands of investors" while simultaneously guaranteeing that consumers "are adequately protected and markets function well."
This proposal aims to harmonize regulations governing crypto product accessibility following the FCA's decision to remove its prohibition on retail investors trading crypto exchange-traded notes in August, as the regulatory body sought to bring retail cryptocurrency access in line with other nations.
In its consultation document, the FCA stated that the proposed 10% ceiling would "set conservative restrictions on assets to which a fund can be exposed, in exchange for allowing these funds to be marketed to retail consumers."
The regulatory authority further stated that it did not consider permitting retail-oriented funds "to have significant exposure" to cryptocurrency products to be appropriate, "given the speculative nature of the underlying cryptoassets."
According to the FCA, retail funds seeking to invest in cryptocurrency must also demonstrate that such investment is "consistent with the disclosed investment objectives and risk profile of a given fund."
The proposal indicated that unregulated and qualified investor schemes would be permitted to invest in "more speculative assets," and no limit would be applied to their holdings, though these funds cannot be marketed or sold to retail investors.
The FCA is additionally requesting feedback on whether it should prohibit funds focused on holding so-called "long-term assets" such as property and other retail-oriented funds from holding crypto exchange-traded notes, contending that it does not view crypto as being consistent with the funds' investment objectives.
The consultation period for the proposal will run for five weeks, concluding on July 13.
This development arrives as the UK has been paving the way for cryptocurrency adoption, with the FCA and Bank of England consulting on proposed regulatory frameworks for stablecoins, crypto custody and staking.
The Bank of England announced last month that it was reevaluating portions of its proposed stablecoin regulatory framework after cryptocurrency companies expressed concerns that holding caps and reserve requirements could hinder adoption.
In April, the FCA also introduced new rules for tokenized funds designed to facilitate asset managers' use of blockchains and requested feedback on guidance to clarify requirements for stablecoin issuance, crypto trading, custody and staking.