UK Financial Conduct Authority (FCA) plans to ban retail cryptocurrency investment lending

The Financial Conduct Authority (FCA) of the United Kingdom plans to ban retail investors from using borrowed funds (including credit cards) to buy cryptocurrencies due to concerns about financial risks.

According to a May 2 Financial Times report, the ban on borrowing to buy cryptocurrencies is one of the FCA's upcoming cryptocurrency rules. David Geale, executive director of payments and digital finance at the FCA, told the Financial Times: "Cryptocurrency is a potential growth area for the UK, but it must be done in the right way." He added: "To do this, we must provide an appropriate level of protection."

Geale denied the claim that the FCA is hostile to the cryptocurrency industry. Instead, he explained that he believes the industry offers high-risk investments with low levels of consumer protection. "We are open to business," he said.

Prior to this interview, the FCA is seeking opinions on the regulation of the cryptocurrency market. In an accompanying document, the regulator noted that it is "exploring whether it is appropriate to restrict businesses from accepting credit as a means for consumers to purchase crypto assets."

Upcoming rules from the FCA

The FCA plans to regulate the domestic cryptocurrency market, including trading platforms, intermediaries, cryptocurrency lenders, and decentralized finance (DeFi) systems. The regulator reportedly plans to set stricter rules for crypto services targeting retail investors, while services for professional or sophisticated investors are relatively relaxed.

Gale explained that the agency aims to create a "safe and competitive" framework. He said the regulator's goal is to create a regulatory regime that will attract businesses: "If we can get the regulatory regime right, it will actually be attractive to businesses. That's what we're trying to achieve."

FCA lending ban

The regulator explained that the upcoming ban on lending for consumer cryptocurrency purchases is due to "concerns about unsustainable debt, especially when the value of their crypto assets falls and they rely on its value to repay the loan." The ban will also include credit card purchases.

While the 2024 FCA research showed that "the main payment method among crypto asset users remains personal disposable cash/income (72%)", the research also highlighted the growing trend of credit purchases. The research noted that only 6% of purchases were made on credit in 2022, but this figure rises to 14% in 2024.

The FCA also reportedly plans to ban retail investors from using cryptocurrency lending services. Other concerns raised by the regulator about the cryptocurrency market include market manipulation, conflicts of interest, settlement failures, lack of transparency, insufficient liquidity and unreliable trading systems.

To mitigate these issues, the regulator plans to require cryptocurrency trading platforms to treat transactions equally. Other potential rules include mandatory separation of proprietary trading activities from retail investor transactions and transparent pricing and execution of transactions.

Trading platforms will be prohibited from paying intermediaries for order flow, and users of staking services must be compensated for any potential losses caused by third parties. The FCA plans to exempt DeFi systems that are not centrally operated as long as they do not have a "clear controller".