where the UK’s going wrong

The UK’s ambition to be a global crypto hub is being undermined by the government’s decision to the exclude Crypto Exchange Traded Notes (cETNs) from Stocks and Shares ISAs, which risks the country’s international competitiveness and credibility as a predictable place to invest, says John Glen

The UK’s ambition to be a global crypto hub is a crucial element in maintaining our international competitiveness and our status as a leading financial centre. As economic secretary to the Treasury, I introduced a number of initiatives designed to ensure digital asset pioneers could invest, innovate and scale up in this country. I knew this was just one decision, but further steps would need to be taken. Following the last general election, I was encouraged to hear that this Labour government supported that ambition.

However, an incoherent approach to the tax treatment of digital assets risks not only undermining this ambition, but also our credibility as a consistent, predictable place to invest and do business.

In 2020, the FCA banned retail investors from accessing Crypto Exchange Traded Notes (cETNs), securities that provide exposure to cryptoassets that are widely traded across the EU and the US. When the ban was introduced, Bitcoin was trading at $36,824 and Ethereum at £1207. I questioned industry experts as part of a Treasury Select Committee evidence session on cryptoassets last November, Bitcoin was trading nearly 203 per cent higher and Ethereum 226 per cent higher, compared to the FTSE 100’s 42 per cent.

There has, rightly, been much attention given to the FCA and PRA’s new secondary international competitiveness and growth objective. There are different ways of measuring the international competitiveness of the UK relative to other jurisdictions: the efficiency of our authorisation processes for new businesses, our ability to adapt to market innovations and the degree of regulatory clarity we can provide to allow firms to invest and grow.

The inconsistent approach to retail investors and cETNs would suggest we’re not meeting the challenge by any of these measures. Last October, HMRC decided that come the new tax year, cETNs would no longer be eligible for popular, widely held Stocks and Shares ISAs. Instead, they would be confined to niche Innovative Finance ISAs.

HMRC justified their position on the grounds of “consumer understanding and market maturity”. However, in contrast FCA Executive Director of Payments and Digital Finance David Geale decided to expand retail access to cETNs because “the market has evolved, and products have become more mainstream and better understood”. This is the type of contradictory siloed, cross-purpose working that deters investment and innovation.

Where’s the ISA innovation?

While there are hundreds of Stocks and Shares ISA providers, only 57 platforms are currently registered with HMRC to offer the Innovative ISA. With no investment platform currently authorised to sell both cETNs and Innovative Finance ISAs, HMRC’s position risks is undermining the FCA’s, and the Government’s ambitions in this market.

While in the Treasury, I approved the creation of Long-Term Asset Funders to allow retail investors to benefit from exposure to long-term investments like private equity, venture capital and infrastructure. These are classified as Restricted Mass Market Investments, meaning there are specific requirements about how they are marketed to retail investors.

cETNs are also classified as Restricted Mass Market Investments, but while Long-Term Asset Funds will be eligible for inclusion in Stocks and Shares ISAs in the next tax year, cETNs will not. The move is also contrary to the UK’s intention to apply a similar approach to crypto and traditional financial instruments and further undermines our reputation for predictable, proportionate regulation.

If this government wants to achieve greater international competitiveness and growth, it needs to ensure a coherent approach across government and arm’s length bodies. Allowing retail investors to hold cETNs in Stocks and Shares ISAs would be a good start.

John Glen, Conservative MP and former City minister and chief secretary to the Treasury