UK to regulate Crypto sector, targets risky lending and credit use
Britain is to limit consumers’ use of credit cards to purchase crypto and access crypto lending products; the regulator stated on Friday that a move was sought to enhance protection as crypto assets are regulated for the first time.
The UK finance ministry has announced plans to bring cryptocurrencies under formal regulation, aiming to balance innovation with investor protection. The move will place exchanges, dealers, and issuers under the existing financial regulatory framework.
Crypto’s Growing Popularity—and Risk
Crypto trading has surged in recent years, with approximately 7 million Britons—roughly 12% of the adult population—owning cryptoassets, according to the Financial Conduct Authority (FCA). Despite this growth, the market remains largely unregulated. The FCA continues to caution that investors should be “prepared to lose all their money.”
New Laws Target “Bad Actors”
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The government has introduced draft legislation aimed at curbing illicit practices in the cryptocurrency industry while encouraging legitimate players to innovate. The FCA is now gathering feedback on a series of proposed consumer protections, particularly around the use of borrowed funds for crypto investments.
Borrowing to Buy Crypto Under Scrutiny
One of the FCA’s key proposals is to restrict retail investors from using borrowed money—such as credit cards or credit lines from e-money firms—to purchase cryptoassets. However, exceptions would be made for stablecoins issued by FCA-regulated companies, as these are pegged to assets like the US dollar and seen as less volatile.
A recent FCA survey revealed that 14% of crypto investors used borrowed funds to buy crypto in 2023, up from 6% in 2022.
Lending and Borrowing of Crypto May Face Limits
The FCA is also considering tighter rules on cryptoasset lending and borrowing. These practices—though still a niche part of the market—can pose serious risks, including liquidity issues, unclear ownership rights, and inadequate borrower assessments. Proposed safeguards include credit checks and tests to evaluate investors’ knowledge and experience.
What Comes Next?
The FCA’s proposals are now open for public feedback. While regulatory enforcement is still in development, this shift marks a significant step toward formalizing crypto oversight in the UK.