The United Kingdom Financial Conduct Authority is considering a broad regulatory change that would prohibit the use of borrowed money, even credit cards, to buy cryptocurrencies. The government hopes this new regulation will discourage consumers from investing in the fickle crypto markets and taking unsustainable debt.
Surging Fears Over Using Credited Funds in Crypto Invesments
The FCA proposal follows a rising trend of consumer debt associated with investing in cryptocurrencies. FCA research puts the proportion of UK consumers who have used credit to purchase crypto assets at more than double, increasing from 6% in 2022 to 14% in 2024. The trend has sparked concern that people risk losing large amounts of money, particularly due to the volatility of digital assets.
David Geale, the FCA’s executive director of payments and digital finance, reiterated the regulator’s position: “Crypto is an area of potential growth for the UK, but it has to be done right. To do that, we have to provide an appropriate level of protection”.
Scope of the Proposed Ban
The mooted ban would prevent retail investors from using every type of borrowed money—ranging from credit cards to personal loans and lines of e-money credit—to buy cryptocurrencies. Yet, the FCA is floating exemptions for stablecoins that are issued by FCA-regulated firms, recognizing their increasing use in digital payments.
Aside from limiting the usage of borrowed money, the FCA is also considering other steps to better protect consumers in the crypto space. These are doing credit checks and evaluating investment experience for consumers participating in crypto borrowing and lending, which are considered high-risk undertakings because of potential losses and lack of supervision.
Broader Regulatory Framework
The FCA’s move is a part of a widespread effort to subject the crypto space to tighter regulatory controls. The new rules would cover many aspects of the crypto business, such as trading platforms, intermediaries, lending and staking facilities, and decentralized finance (DeFi) systems. Most notable features of the proposed framework are:
Obvious FCA Authorization: All platforms for trading in crypto assets provided to UK retail customers would require authorization by the FCA and would have to meet standards relating to transparency, consumer protection, and operational resilience.
Separate Trading Activities: Platforms would also be required to segregate trading activities on an own account and those on account of clients and to ensure non-discrimination towards investors.
Transparency of Trade Execution: The FCA will ensure transparency in the execution and price of trade with platforms being required to present precise information to consumers.
Restriction on Crypto Lending and Staking: Cryptocurrency lending and staking firms would have to adhere to robust capital, liquidity, and risk management requirements. Some DeFi participants, such as front-end operators and holders of governance tokens, might fall under regulatory responsibilities under the proposed rules.
Industry Response and Consultation Period
The crypto sector has reacted with a combination of approval and alarm to the FCA’s proposals. While recognizing the necessity for consumer protection, certain industry leaders are concerned that overly strict rules will suppress innovation and hamper the UK’s aspirations to become a global center for digital assets.
The FCA has initiated a public consultation period, welcoming comment on the proposed measures until June 13, 2025. The regulator then intends publishing a formal consultation later in the year, with the new rules to be finalized by the end of 2025 .
International Context and Future Outlook
The UK’s regulatory style is more in line with the U.S. model of promoting innovation while maintaining market integrity and consumer protection. This is in contrast to the European Union’s more stringent approach, as seen in the forthcoming Markets in Crypto-Assets (MiCA) regulation that will come into force in 2026.
U.K. Chancellor Rachel Reeves has spoken with U.S. Treasury Secretary Scott Bessent, an outspoken supporter of cryptocurrencies, to coordinate regulatory approaches and support sustainable growth within the digital finance industry.
As the UK moves forward with these regulatory changes, the balance between protecting consumers and encouraging innovation will be crucial. The outcome of the public consultation and the subsequent implementation of the proposed measures will significantly shape the future of the UK’s crypto landscape.
