Asset manager Jupiter can’t invest in crypto ETFs – Here is why

Jupiter, an esteemed asset management firm, recently found itself at the heart of a regulatory conundrum, showcasing the complex tapestry of regulations governing crypto investments across the European Union. Jupiter’s attempt to navigate these waters underscores the divergent paths taken by EU member states, with Ireland’s strict stance effectively sidelining the firm’s ambitions to embrace crypto through its funds.

The Regulatory Maze

Jupiter’s foray into cryptocurrency investments hit a significant roadblock, courtesy of its compliance department. The team’s endeavor to include a cryptocurrency exchange-traded product (ETP) in one of its Irish-domiciled Ucits funds was thwarted, shining a light on the intricate and sometimes contradictory regulatory landscape within the EU. This scenario unfolded despite growing enthusiasm among fund managers to incorporate crypto assets into their portfolios, revealing a patchwork of regulatory attitudes that vary sharply from one country to another.

Ireland, where Jupiter sought to make its crypto investment, maintains a prohibitive stance on including such assets in Ucits funds. This position starkly contrasts with Germany’s more accommodating approach, as illustrated by DWS’s Fintech fund’s investment in an Ethereum exchange-traded note. The incident with Jupiter involved a $2.57 million investment in 21Shares’ Ripple XRP ETP for its Gold & Silver fund, which was promptly identified and reversed by the firm’s oversight processes, resulting in a minimal loss.

This incident highlights Jupiter’s vigilant internal control as well as the lack of regulatory action, indicating a self-regulatory commitment to Ireland’s standards. Although this is Jupiter’s first foray into digital currency, it is noteworthy nevertheless. An earlier cryptocurrency investment that was made in 2017 predates the clarification that the Irish regulator provided on such holdings. This statement provides a clue at the ever-changing nature of regulatory environments and the problems that they provide to asset managers who are keen to investigate the cryptocurrency industry.

Uncharted Waters

The broader context of Jupiter’s experience speaks volumes about the ongoing debate over crypto’s place in traditional investment vehicles across Europe. Ucits funds, known for their stringent investment criteria, allow a limited exposure to illiquid assets. However, the inclusion of crypto ETPs in this allowance is a matter of contention among European regulators. While Ireland and France have signaled a conservative approach, denying Ucits funds the ability to invest in crypto assets, Germany’s regulator presents a more nuanced view, permitting exposure to crypto ETPs under specific conditions.

This disparity highlights the challenges faced by asset managers like Jupiter, which operate on a pan-European stage, navigating a regulatory labyrinth that offers no uniform guidance on crypto investments. The situation is compounded by the varied responses from regulatory bodies across the continent, from the Central Bank of Ireland to the Autorité des Marchés Financiers in France, each asserting a cautious stance towards integrating crypto assets into Ucits funds.

Meanwhile, the European Commission’s move to review the Ucits eligible assets directive hints at a potential reshaping of the regulatory framework, potentially broadening or further restricting the avenues through which funds can gain exposure to digital assets. This ongoing debate reflects the financial industry’s broader struggle to reconcile the innovative potential of cryptocurrencies with the need for investor protection and market stability.