The Financial Times reported on Friday that the UK’s Financial Conduct Authority (FCA) is looking to take action that will considerably limit the ability of retail investors to purchase cryptocurrencies through borrowing. These reported decisions mark a shift in strategy by the financial watchdog to mitigate what is believed to be overly reckless activity in the digital asset market, especially concerning consumer protection against potential over-indebtedness. The source suggests that as a result of these plans, the population will find it significantly easier to access cryptocurrencies with borrowed money.
Blocking Lending and Credit Card Usage
The report shows that major FCA is trying to prevent crypto retail investors from acquiring the option of using borrowed money or debt for purchasing crypto. In particular, the report from Financial Times mentions that the FCA aims to stop firms from directly providing loans to retail investors for the specific intention of buying cryptocurrencies. Interestingly, the report also mentions how UK citizens will no longer be able to use credit cards to purchase crypto assets. In addition, this source, citing the Financial Times, mentions the intention that retail investors would also reclaim the ability to lend against their crypto holdings or borrow crypto itself through popular services.
Why Regulators Are Concerned
The financial regulator responsible for monitoring the world’s sixth largest economy is reportedly worried about the frighteningly high level of harm that borrowers stand to incur. This worry especially focuses on where people might get stuck in scenarios where they have taken loans and might not be able to pay the loans back if the prices of cryptocurrencies drop significantly. Crypto markets already possess troublesome levels of volatility, which means that the value of assets bought with borrowed money would often fall below the amount owed on the loan or put the borrower in a position where they owe more than they are debt-laden digital assets.
It looks like this consumer risk is what motivated the proposed restrictions on using borrowed money for cryptocurrency purchases.
Context and Industry Response
As U.Today reported, the UK government has proposed regulations to govern the crypto industry, which point towards the FCA’s draft rules for the crypto sector. Such overall moves towards regulation have received positive praise from some industry participants, including the American blockchain technology company Ripple. However, the borrowing measures related to cryptocurrencies did receive some backlash. Reportedly, some crypto critics view the FCA’s proposals as overly draconian and suspect that the regulator is seeking to punish the industry. Geale, the FCA executive director, has proposed consumer protections and digital asset measures, suggesting there is an “appropriate level” aligned with the protection principle, thus supporting the proposed measures.
Other Activity Focused on Different Regulations
The draft report regarding borrowed funds and crypto purchases aligns with other recent action taken by the FCA. Earlier today, the FCA also reported soliciting public comment on the regulation of trading platforms for cryptocurrency.
This shows that the FCA also cares about the places where trading activities take place in the consideration of the crypto regulatory environment, going beyond only the methods of initial acquisition. The FCA’s attention to lending and credit card usage, alongside feedback gathering on trading platforms, indicates a multifaceted approach directed toward crypto consumer risk protection and managing threats for retail investors.
