FCA moves to tighten crypto rules, banning credit card use and loans for digital asset purchases to protect retail investors.

As part of its broader push to regulate the fast-evolving crypto market, the UK’s Financial Conduct Authority (FCA) is preparing to ban retail investors from using borrowed funds, including credit cards—to invest in cryptoassets. The move, reported by the Financial Times on May 2, marks a significant step in tightening consumer protections within the high-risk crypto space.

FCA Cracks Down on Credit-Fuelled Crypto Buys

The FCA’s planned restrictions target a growing trend among retail investors who rely on credit to purchase cryptocurrencies. In 2022, only 6% of crypto purchases were made on credit, but by 2024, that figure more than doubled to 14%. Concerned about rising debt levels and potential losses from volatile assets, the FCA now aims to curb these risky behaviours.

“Crypto is an area of potential growth for the UK, but it has to be done right,” said David Geale, FCA’s executive director of payments and digital finance. He stressed that consumer protection is a core priority, especially given crypto’s speculative nature.

Broader Rules for a Safer Crypto Market

Beyond the borrowing ban, the FCA is drafting a wider regulatory framework for the domestic crypto industry. This includes oversight of:

• Trading platforms
  
• Intermediaries
  
• Crypto lenders and borrowers
  
• Decentralised finance (DeFi) systems
  

Retail investors can expect stricter safeguards compared to professional or institutional participants. According to Geale, the goal is to make the UK a competitive hub for crypto businesses—provided they operate within a secure, transparent framework.

Why the Lending Ban Matters?

The FCA argues that letting consumers buy crypto on credit increases the risk of unsustainable debt, especially when markets turn bearish. If asset values fall and investors were relying on gains to repay their loans, it could lead to significant financial strain.

As part of the proposed ban, platforms would be prohibited from accepting credit cards for crypto purchases and from offering access to lending services for retail users. The regulator also seeks to restrict access to crypto lenders and borrowing services altogether.

New Standards for Crypto Platforms

To further address issues like market manipulation, illiquidity, and transparency lapses, the FCA is considering several reforms for crypto trading platforms. These may include:

• Equal treatment for all trades
  
• Separation of proprietary and retail trading
  
• Transparency in trade pricing and execution
  
• A ban on payment for order flow
  
• Staking users’ compensation for losses caused by third parties
  

However, the FCA may exempt decentralised systems that operate without a clear central authority or controlling person.