By Tommy Reggiori Wilkes
LONDON (Reuters) -Britain is to restrict consumers’ use of credit cards to buy crypto and their access to crypto lending products, the regulator said on Friday, a move aimed at improving protection as cryptoassets are regulated for the first time.
The finance ministry this week said it would bring cryptocurrencies under compulsory regulation, with exchanges, dealers and issuers all coming under the existing rulebook.
Crypto trading has exploded in popularity, with around 7 million people – about 12% of the adult population – owning cryptoassets, but it remains largely unregulated, the Financial Conduct Authority (FCA) said. The regulator maintains consumers “should be prepared to lose all their money” if they invest.
Announcing new draft laws to regulate the sector, the government said it wanted to crack down on “bad actors” while supporting legitimate innovation in the burgeoning industry.
The FCA is now looking at introducing curbs on retail investors using borrowed funds for crypto.
“We are considering a range of restrictions, including restricting the use of credit cards to directly buy cryptoassets, and using a credit line provided by an e-money firm to do so,” it said in a paper seeking feedback on its proposals.
Consumers would still be free to use borrowed money to buy stablecoins, digital currencies that aim to keep a fixed value relative to other assets such as the U.S. dollar, issued by FCA-regulated companies.
The FCA, citing a survey it commissioned, said 14% of crypto investors had used credit to buy crypto last year, up from 6% in 2022.
The regulator is also considering restrictions on the lending and borrowing of cryptoassets, including running credit checks and testing consumers’ investment knowledge and experience.
Cryptoasset lending involves the owner loaning their crypto in return for a yield, while cryptoasset borrowing sees customers get loans in crypto that are later paid back with interest.
While a small part of the market, cryptoasset lending and borrowing presented “risks of significant harm”, the FCA said, including loss of ownership, liquidity risks, limited borrower creditworthiness checks and a lack of consumer understanding.
Institutional investor access would remain, it added.
The regulator will also seek to improve transparency and consumer understanding of ‘staking’ – locking digital tokens in a blockchain network in return for rewards. A survey the FCA commissioned found 27% of UK adults who own crypto have used staking.
Hannah Meakin, partner at law firm Norton Rose Fulbright, said the FCA was trying 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.”
(Reporting by Tommy Reggiori Wilkes, Editing by Iain Withers and Louise Heavens)
