HMRC's Tax Clampdown and FCA's Relaxed Rules Lead to a Crypto ETN Dilemma

The regulatory environment in the UK for crypto exchange-traded notes (ETNs) has become a source of heated debate as investors are confronted with an impending deadline to realign their portfolios. Following the Financial Conduct Authority’s (FCA) recent decision to lift the retail ban on crypto ETNs, the sector is now contending with HMRC’s stringent tax policies, which restrict these instruments to a limited range of investment wrappers. Investors who currently hold crypto ETNs within Stocks and Shares ISAs must liquidate those assets by April 2026, as HMRC has ruled that only the specialized Innovative Finance ISA (IFISA) structure is eligible for such products, according to an

. This regulatory change has prompted platforms such as AJ Bell, Nutmeg, and to either redeem clients’ ETNs or transfer them to accounts without tax benefits, the ETF Stream article noted.

This regulatory shift highlights HMRC’s increasing focus on crypto assets. While the FCA’s move to relax rules on crypto ETNs was seen as a win for retail investors, HMRC’s concurrent actions have created a contradiction. By limiting crypto ETNs to IFISAs—a structure with minimal uptake—the tax authority is effectively restricting retail participation. This situation underscores a broader regulatory challenge in balancing innovation with oversight. “The policy change is a direct reaction to HMRC’s uncompromising approach,” one industry expert commented, pointing out that platforms unable to offer IFISAs are facing significant operational challenges, according to the ETF Stream article.

At the same time, HMRC has ramped up its efforts to combat crypto tax evasion. Nearly 65,000 warning notices have been issued to taxpayers suspected of non-compliance during the 2024-25 tax year, marking a shift from education to enforcement, according to a

. The October 31 deadline for paper tax returns—coinciding with Halloween—adds pressure for those with crypto profits over £3,000, who may be subject to capital gains tax rates of either 10% or 20%, depending on their income, the report stated. This deadline also foreshadows 2026, when UK crypto exchanges will be mandated to provide transaction data to HMRC, further tightening oversight, the report added.

The sector is calling for clearer regulations. Some providers, such as BlackRock with its iShares

ETP, are introducing crypto ETNs aimed at UK retail investors despite the uncertain environment, the ETF Stream article observed. Supporters believe that permitting these products in Junior and Lifetime ISAs would expand access, similar to their current availability in junior SIPPs under certain circumstances, the ETF Stream article mentioned. However, HMRC’s unwillingness to reconsider its stance has left investors in limbo, with platforms like Freetrade and Lightyear needing to prepare alternative strategies, according to the ETF Stream article.

The impact goes beyond ETNs. Euronext’s plan for a pan-European ETF trading platform has faced criticism for its intention to centralize settlement in its Milan depository, sparking worries about higher costs and market fragmentation, the ETF Stream article reported. Meanwhile, Middlefield’s transformation of a Canadian investment trust into an ETF—debuting with $80 million in assets—demonstrates the industry’s shift toward structured products as traditional wrappers come under increased scrutiny, the ETF Stream article added.

With regulatory requirements tightening in the UK, the crypto ETN sector finds itself at a pivotal moment. Investors must adapt to a swiftly evolving environment where tax rules, product eligibility, and market systems are all in flux. As HMRC intensifies its enforcement and the FCA’s deregulatory efforts face limitations, the ongoing debate over crypto ETNs reflects the larger question of how digital assets will fit into mainstream finance.