The UK’s Financial Conduct Authority (FCA) is considering options that may lead to a restriction preventing residents from using credit to acquire crypto assets. As reported by Financial Times on Friday, the FCA wants to restrict companies from enabling residents to purchase crypto using credit cards. This is part of a new discussion document published by the regulator, which aims to increase consumer safeguards in the industry by restricting some activities that are deemed excessively dangerous.
Increased Interest in Borrowing Funds for Crypto
There is evidence suggesting that spending on credit to purchase crypto assets is rising among UK residents. The number of people who reported purchasing assets using borrowed funds increased from 6% in 2022 to 14% in 2024, according to a YouGov survey commissioned by FCA. It seems that the regulator’s proposed action is largely motivated by the increased spending of credit to purchase cryptocurrencies.
FCA’s Worries Regarding the Risk of Debt
The FCA is most concerned with the possibility that individuals may incur unsustainable levels of debt from purchasing volatile assets such as cryptocurrency, especially if done on credit. Their focus grows stronger if the value of the crypto assets plunges significantly and the individual is depending on the value of that crypto to repay the borrowed money. This situation would leave crypto asset borrowers in a position where they owe more money than their digital assets are worth, which is a debilitating economic situation.
Proposed All-Encompassing Ban
To counter these worries, it seems the FCA is proposing an all-encompassing ban on the use of credit cards and credit lines for crypto purchases. This ban would cover all businesses that offer services in crypto-enabling transactions. The report says that some of the major payment companies have already made self-imposed caps on lending for crypto purposes. They, however, are now contemplating a complete ban. The suggestion adds that the restriction is very likely to be capped on such stablecoins, which are issued by providers approved by the FCA, implying that certain regulated digital currencies may be shielded from the requirement.
Regulatory Context
The discussion paper, along with the proposed ban on acquiring crypto via credit, comes alongside recent shifts in regulation within the UK. The source mentions how the paper is an outcome of the legislative proposal put forward by the UK government last week. The intent of this legislation is to incorporate crypto companies into the existing regulatory framework and is likely to enhance the FCA’s supervisory authority over the digital asset sector in the UK. This proposed ban on credit also fits the overarching strategy of the government in developing a more complete regulatory policy for crypto.
The Balance from the Regulator’s Side
Comments by David Geale—FCA’s Executive Director for Payments and Digital Finance—have touched on the approach of the regulator and the objectives in the context of the proposed measures. Geale noted, “Crypto is a growing industry. Currently largely unregulated, we want to create a crypto regime that gives firms the clarity they need to safely innovate while nurturing the appropriate levels of market integrity and protection.” This captures the growing concern and an underlying problem of balanced consumer protection. Focusing on the regulatory aim for the sector’s evolution in the UK, Geale stated, “Our aim is to drive sustainable, long-term growth of crypto in the UK. We’re asking whether we have got the balance right.” With this, we can understand that he wants to make it clear everyone takes part in the policymaking process with the appropriate discussions complementing the practices aimed at striking levers between boundaries.
Your Chance at Providing Input Feedback
The process set forth by the FCA’s discussion paper gives an opportunity for people with interest to express their thoughts regarding the proposed ban and other relevant aspects. Any comments regarding the discussion paper are to be sent to the FCA by June 13. After this preliminary phase, the FCA intends to refine the rules and move further within the regulatory steps. The regulator intends to hold one more consultation focused on the final set of rules and then adjust the regulations later this year. This approach gives ample time to adapt to suggestions from the public and various other stakeholders prior to the actual implementation of the guidelines.
