Britain’s authorities are planning further limits on consumers’ access to credit cards for purchasing crypto assets and cryptocurrency lending services. This was reported last Friday along with a statement from the authorities claiming that new measures are aimed at improving consumer protection in the face of the new protective regulations being imposed for the first time.
Broader Regulatory Context
The intent to limit access to loans follows a wide-scope change in approach within the UK. The British finance ministry has proposed legislation for the mandatory regulation of cryptocurrencies. Under this model, all businesses, including crypto exchanges, dealers, and other issuers, will become subject to existing financial regulations in the UK. The FCA, in their recent statements, while admitting the ‘explosion in popularity’ of crypto trading, observed that there is “no” regulation. The Financial Conduct Authority drew attention to the fact that there are approximately 7 million crypto users in Britain—12% of the adult population. In the statement introducing the regulatory framework, the government emphasized the need to tackle “bad actors” while also enabling innovation within the fast-growing crypto industry.
Limits on Funded Borrowing
The FCA is currently considering restrictions on the use of borrowed funds by retail investors to buy cryptocurrencies. In one of its papers requesting feedback on its proposals, the regulator said, “We are looking at a range of restrictions for some credit card purchases of cryptoassets and also the use of a credit line supplied by an e-money institution.” This shows that the measures are aimed at specific ways of acquiring crypto with credit.
Concerns and Data on Credit Use
In this instance, the primary focus area for the regulator is consumer credit debt. The FCA is concerned about the possibility that consumers may acquire overwhelming debt through purchasing volatile and risky crypto assets. The FCA has also cited some survey data claiming that more consumers are engaging in this practice. For example, in a survey commissioned by the FCA, 14% of crypto investors reported using credit to purchase crypto last year, up from 6% in 2022. This growing trend of funding crypto purchases through credit illustrates why the FCA must act to limit risks. Limits on Lending and Borrowing Activities
Alongside limits on the external credit usage for purchasing, the external credit use requires limits on lending and borrowing of crypto assets themselves. This includes activities such as running consumer credit checks and evaluating consumers. These restrictions on crypto lending and borrowing products seem intended to serve as additional safeguards for retail investors who actively participate in the deemed risky digital asset investments.
Possible Exemption for Stablecoins
The proposals make mention of an exemption to some categories of digital currencies. It appears consumers will still be able to utilize borrowed funds to purchase stablecoins. Such an exemption would relate to the stablecoins issued by firms regulated by the FCA. Stablecoins are defined as digital currencies that are designed to maintain a constant value in comparison to other currencies like the U.S. dollar.
Feedback Process
The consultation process is signified by the discussion paper, which also contains the proposals. Stakeholders may give feedback on the discussion paper up until June 13, 2025. After the feedback period, the FCA intends to further consult on the final regime sometime later this year. This enables consideration of both industry and public input before the final regulations are put in place. The goal is to make certain that the regulatory structure still fosters growth while safeguarding the consumers within the dynamic landscape of cryptocurrency.
