UK's FCA Proposes Ban on Credit for Crypto Purchases to Prevent Debt

The UK's Financial Conduct Authority has proposed a ban on the use of credit to purchase crypto assets. This move is aimed at preventing UK adults from going into debt to buy crypto, which is considered a risky practice due to the inherent volatility of digital assets. The regulator is concerned that consumers may take on unsustainable debt, especially if the value of their crypto assets drops and they were relying on its value to repay.

The proposed rule would outlaw crypto firms from allowing British customers to buy crypto assets with a credit card, as well as any other form of credit, including loans and digital currency credit lines. The FCA has opened the rulemaking to public comment and will accept input on the proposal until June 13.

A recent survey commissioned by the Authority found that 14% of UK crypto users reported using credit to buy digital assets in August 2024. This figure marked a significant increase from two years prior, indicating a growing trend of consumers using credit to invest in crypto.

The proposal, if passed, would not necessarily impact all crypto assets. The FCA stated that stablecoins authorized by its regulatory regime would likely be exempt from the credit ban. This exemption is likely due to the fact that stablecoins are designed to maintain a stable value, reducing the risk of significant price fluctuations.

In addition to the proposed ban on using credit to purchase crypto, the FCA has put forth other crypto-related proposals. One such proposal would make crypto staking firms liable for financial losses suffered by retail consumers where the firm has “inadequately assessed its technological and operational resilience, including third-party dependencies.” Another proposal includes a ban on all crypto lending and borrowing platforms.

These proposals reflect the FCA's ongoing efforts to regulate the crypto industry and protect consumers from the risks associated with digital assets. The regulator's concerns about the use of credit to purchase crypto highlight the potential for consumers to take on unsustainable debt, which could have serious financial consequences.