Europe’s regulatory landscape for digital assets is undergoing a significant shift, with two major updates from Luxembourg and the United Kingdom signalling that digital assets are firmly on their way into mainstream financial supervision.
Zeidler Group recently delved into what the new regulations mean for funds and firms.
The Luxembourg financial regulator, the CSSF, has published an updated FAQ on crypto assets and collective investment vehicles, while the UK’s Financial Conduct Authority (FCA) has outlined its forthcoming full regulatory regime for cryptoassets under the Financial Services and Markets Act (FSMA).
In Luxembourg, the CSSF released Version 7 of its FAQ on Crypto-Assets for Undertakings for Collective Investment on 4 February 2026, formally aligning its terminology and framework with the EU’s Markets in Crypto-Assets Regulation (MiCAR).
One of the most consequential clarifications concerns UCITS funds, which may now obtain indirect exposure to digital assets — though this comes with strict guardrails. Exposure is capped at 10% of a fund’s net asset value and must be achieved through eligible transferable securities under MiFID that do not embed derivatives.
Fund managers are required to conduct a thorough risk assessment, document their analysis rigorously and incorporate the associated risks into their overall risk management framework. Crucially, direct exposure to digital assets remains off-limits for UCITS funds, and prior notification to the CSSF is expected before any such strategy is implemented.
For alternative investment funds (AIFs), the picture is somewhat broader, Zeidler said. The CSSF confirms that AIFs may invest directly or indirectly in digital assets falling within MiCAR’s scope. However, AIFs marketed to retail investors remain subject to the same 10% net asset value cap.
Where an AIF’s digital asset exposure exceeds this threshold, investment fund managers must obtain prior CSSF approval under the “Other-Other Fund – Crypto-assets” strategy designation. Managers seeking indirect exposure through target funds should also be mindful that allocations exceeding 20% of net asset value may trigger a fund-of-funds authorisation requirement.
Across the Channel, the FCA is preparing to replace its current anti-money laundering registration framework with a comprehensive FSMA-based authorisation regime. The new regime is designed to bring digital asset firms fully within the UK financial services perimeter, holding them to standards comparable to traditional financial institutions.
Regulated activities will include operating digital asset trading platforms, dealing in or arranging deals in digital assets, providing safeguarding and custody services, and issuing qualifying stablecoins.
Authorised firms will face a broad range of obligations covering conduct of business, senior management accountability, prudential and capital requirements, operational resilience, and Consumer Duty compliance.
Applications are expected to open on 30 September 2026 and run through to 28 February 2027, with the regime formally entering into force on 25 October 2027.
Despite operating under different legislative frameworks — MiCAR in the EU and FSMA in the UK — both regulators are pursuing a strikingly similar policy direction, Zeidler said.
Digital assets are being absorbed into existing regulatory architectures rather than governed by bespoke or exceptional regimes. Retail participation is permitted but hedged with clear protections, whether through quantitative caps in Luxembourg or a robust conduct framework in the UK. In both jurisdictions, governance expectations are intensifying, AML/CFT obligations are being strengthened, and full authorisation is becoming the default rather than the exception.
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