UK Regulator Considers Banning Credit Card Crypto Purchases

The UK’s top financial regulator is considering banning the use of credit cards and other forms of credit to purchase Bitcoin and other crypto assets due to growing concerns about consumer debt and financial harm. The proposal appears in a new discussion paper released by the Financial Conduct Authority (FCA), which warns that crypto assets pose high-risk and speculative threats to consumers, particularly when bought with borrowed money.

The FCA expressed concern that consumers buying crypto assets with credit may take on unsustainable debt, especially if the value of their crypto assets drops and they were relying on its value to repay. The agency also noted that many UK crypto investors mistakenly believe they are protected by mechanisms such as the Financial Services Compensation Scheme (FSCS) or Financial Ombudsman Service (FOS). In reality, most crypto investments do not carry such protections, and losses are not recoverable in the event of fraud, theft, or bankruptcy.

The FCA is assessing several options, including restricting or banning the use of credit cards to fund crypto purchases, in a bid to reduce the risk of consumer over-indebtedness and speculative loss. This move follows a similar line of reasoning behind the FCA’s 2021 ban on the sale of crypto derivatives to retail investors. However, the FCA stated it’s considering exempting qualifying stablecoins from the proposed restrictions.

Beyond the proposed credit restriction, the FCA’s discussion paper outlines a full blueprint for regulating the digital asset market in the UK, including trading platforms, intermediaries, custody providers, lending, staking, and aspects of decentralized finance (DeFi). According to the paper, all crypto trading platforms serving UK retail clients would need to be authorized by the FCA, with potential restrictions on principal trading. Intermediaries such as brokers would be held to traditional financial standards.

Providers of crypto lending and staking products would need to meet strict requirements for capital, liquidity, and risk management, while certain DeFi actors, including front-end operators and governance token holders, could become accountable under new rules. The FCA’s comprehensive approach aims to protect consumers from the high risks associated with crypto assets while fostering a regulated environment for the digital asset market.