UK retail investors question FCA decision to allow crypto in ISAs

UK retail investors have raised concerns after regulators confirmed that crypto products can now sit inside ISAs. Paul Cavanagh heard the news a few months before Christmas.

Five years ago, the Financial Conduct Authority took the opposite stance. In 2020, the FCA banned retail investors from buying crypto derivatives and exchange-traded notes. Officials said prices swung too much. They pointed to cybercrime. They said many people did not understand the risks. At the time, the watchdog said the ban would save consumers £53 million.

“This ban reflects how seriously we view the potential harm to retail consumers in these products,” said Sheldon Mills in 2020. He added, “Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto derivatives.”

Since then, the market has changed. Adoption grew. Other regions, including the US, moved toward clearer rules. In March last year, the FCA allowed crypto ETNs to list on the London Stock Exchange, but only for institutions. There are now 17 such products on the exchange, offered by firms including 21Shares, Invesco, and Fidelity.

In October, the FCA lifted the retail ban. Investors could buy bitcoin and other coins through regulated, exchange-listed products. The next day, officials confirmed these products could also sit inside ISAs and SIPPs.

Matthew Long from the FCA said, “Since we restricted retail access to crypto ETNs, the market has evolved, and products have become more mainstream and better understood.” He said consumers would get more choice with protections in place.

Demand grows as investors seek simpler access

The FCA estimates that about 5 million people hold crypto in the UK, down from 7 million in 2024. For them, Isa access matters. Gains inside an Isa are exempt from income tax and capital gains tax. When readers were asked if they would use the new option, many said yes.

Anthony Merlo said he wanted to use it but could not. He had already filled his £20,000 ISA allowance. “I was excited, but pretty soon realised I couldn’t take advantage of it. It was a little frustrating,” he said. To use future allowances, he would need an Innovative Finance Isa, which few providers offer.

Matthew Tagliani from Invesco said demand was not only about tax. He said the process had been a barrier. “Previously, if you wanted to buy crypto, you had to do so through a totally different exchange, set up a wallet, and go through a whole different process,” he said. “There is a certain segment of the investor community that just does not think that is worth it.”

Paul agreed. He holds assets on US platforms like Coinbase. He said many people do not want another account. “If I have it through my normal Isa provider, I will be more likely to use it,” he said.

The products also come with tighter rules, like the fact that they must meet FCA disclosure standards. Providers fall under Consumer Duty obligations. They must warn users clearly. These investments are not covered by the Financial Services Compensation Scheme.

ISA structure draws criticism despite wider access

At first, UK crypto ETNs could sit inside normal stocks and shares ISAs. From April 6, HM Revenue and Customs said they must move into Innovative Finance ISAs instead. These accounts were built for peer-to-peer lending and remain niche.

“The Innovative Finance Isa hasn’t been hugely successful in terms of uptake,” said Laith Khalaf from AJ Bell. He questioned why these products were placed there when the same assets can sit inside SIPPs and regular accounts.

Jason Hollands from Evelyn Partners called the setup “strange.” He said a few major platforms would launch a new Isa just for this. He also noted that crypto ETNs remain restricted mass market investments. That status requires strong risk warnings and tight controls on promotions.

Some critics questioned the broader goal. One fund manager said Isa tax benefits should support productive UK assets, not volatile ones. The debate is not new. Some argue Isas should boost UK markets. Others say they exist to help people save, not to direct capital.

Jason said, “If you’re in that school of thought that the government tax incentives should be aimed at stuff that benefits the UK economy, then you might argue, why would we do this for highly speculative assets that don’t actually invest in making it real or tangible?”

Russell Barlow from 21Shares rejected that view. He compared crypto volatility to single stocks. “We don’t prevent them from being owned in Isas,” he said. He likened the risk profile to early stage ventures.

Matthew from Invesco said friendlier rules do not push people to speculate. “It does not necessarily incentivise it. It puts it on a level playing field with other assets,” he said.

Laith said there could be another effect. Younger investors already holding crypto might add traditional assets once they enter mainstream platforms.

For Paul, the past still stings. After the 2021 ruling, he sold his ethereum. It later rose about 90%. “I thought the government was looking after people,” he said.