Britain to Regulate Cryptocurrencies, Restrict Credit Card Use
The UK government is set to introduce new regulations to oversee the cryptocurrency market, including restrictions on consumers’ use of credit cards to buy cryptoassets and their access to crypto lending products. The Financial Conduct Authority (FCA) announced these measures on Friday, May 2, as part of a broader effort to improve consumer protection in the rapidly growing crypto industry.
The finance ministry revealed this week that it would bring cryptocurrencies under compulsory regulation, subjecting exchanges, dealers, and issuers to the existing financial rulebook. Crypto trading has surged in popularity, with approximately 7 million people, or about 12% of the adult population, owning cryptoassets. However, the sector remains largely unregulated, prompting the FCA to warn consumers that they “should be prepared to lose all their money” if they invest.
The FCA is considering a range of restrictions, including limiting the use of credit cards to directly purchase cryptoassets and using credit lines provided by e-money firms for such transactions. Consumers will still be able to use borrowed money to buy stablecoins, which are digital currencies designed to maintain a fixed value relative to other assets like the US dollar, issued by FCA-regulated companies.
According to a survey commissioned by the FCA, 14% of crypto investors used credit to buy crypto last year, up from 6% in 2022. The regulator is also exploring restrictions on cryptoasset lending and borrowing, including conducting credit checks and assessing consumers’ investment knowledge and experience. Cryptoasset lending involves owners loaning their crypto in return for a yield, while cryptoasset borrowing allows customers to take loans in crypto that are later repaid with interest.
While these activities represent a small part of the market, the FCA identified “risks of significant harm,” including loss of ownership, liquidity risks, limited borrower creditworthiness checks, and a lack of consumer understanding. Institutional investor access to these products will remain unaffected.
The FCA also plans to improve transparency and consumer understanding of ‘staking,’ which involves locking digital tokens in a blockchain network in return for rewards. A survey found that 27% of UK adults who own crypto have used staking.
Hannah Meakin, partner at law firm Norton Rose Fulbright, commented that the FCA is attempting to balance innovation with appropriate oversight. “Yet this is no easy feat, and the proof will be in the pudding as to whether they can get this balance right,” she said.
The new regulations aim to crack down on “bad actors” while supporting legitimate innovation in the burgeoning crypto industry. As the UK moves to regulate cryptocurrencies for the first time, the government is keen to ensure that consumer protection is improved without stifling innovation in this rapidly evolving sector.
