The UK is set to tighten regulations on cryptocurrency investments, aiming to protect consumers amid the first wave of comprehensive crypto regulation.
The Financial Conduct Authority (FCA) announced plans to restrict the use of credit cards for crypto purchases and limit access to crypto lending products.
This move follows the finance ministry’s announcement this week to bring cryptocurrencies under existing financial regulations, impacting exchanges, dealers, and issuers.
While crypto trading has surged in popularity, with an estimated 7 million adults (around 12 per cent of the population) owning cryptoassets, the market remains largely unregulated.
The FCA has consistently warned consumers that crypto investments are high-risk, emphasising the potential for total loss.
The FCA’s proposed restrictions on borrowing for crypto investments further underscore the government’s commitment to consumer protection in this volatile market. They maintains its stance that consumers “should be prepared to lose all their money” if they invest in crypto.
“We are considering a range of restrictions, including restricting the use of credit cards to directly buy cryptoassets, and using a credit line provided by an e-money firm to do so,” it said in a paper seeking feedback on its proposals.
Consumers would still be free to use borrowed money to buy stablecoins, digital currencies that aim to keep a fixed value relative to other assets such as the U.S. dollar, issued by FCA-regulated companies.
The FCA, citing a survey it commissioned, said 14 per cent of crypto investors had used credit to buy crypto last year, up from 6 per cent in 2022.
The regulator is also considering restrictions on the lending and borrowing of cryptoassets, including running credit checks and testing consumers’ investment knowledge and experience.
Cryptoasset lending involves the owner loaning their crypto in return for a yield, while cryptoasset borrowing sees customers get loans in crypto that are later paid back with interest.
While a small part of the market, cryptoasset lending and borrowing presented “risks of significant harm”, the FCA said, including loss of ownership, liquidity risks, limited borrower creditworthiness checks and a lack of consumer understanding.
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