The Blubber

The UK’s Financial Conduct Authority (FCA) is preparing to prohibit retail investors from using borrowed funds to buy cryptocurrencies such as bitcoin, in a move to bring a substantial portion of the rapidly expanding digital assets sector under formal regulatory control for the first time.

This proposed ban on borrowing—including the use of credit cards—for crypto investing is part of a broader package of regulations the FCA unveiled on Friday, just days after the government laid out its own legislative framework for digital assets.

“Crypto represents a potential area of growth for the UK, but it must be approached correctly,” said David Geale, the FCA’s executive director of payments and digital finance, in comments to the Financial Times. “That means ensuring consumers have the right level of protection.”

Responding to claims that the FCA is unfriendly to the crypto industry, Geale pushed back: “We’re treating this similarly to other high-risk investments, which often have even fewer safeguards. We are open to innovation.”

The regulator’s proposals aim to bring crypto exchanges, lending platforms, intermediaries, and decentralized finance (DeFi) systems under regulatory oversight. The FCA plans to impose stricter rules for services marketed to retail investors, while being more flexible with services that cater exclusively to professional or sophisticated investors.

Retail investors can apply to be classified as elective professional clients, gaining greater investment freedom but losing some regulatory protections. To qualify, they must meet at least two of the following: hold over £500,000 in investments, have traded 10 times per quarter over the past year, or possess at least one year of professional finance experience.

“We’ve approached this with the goal of creating a framework that’s both secure and competitive,” said Geale. “If we can strike the right regulatory balance, the UK can be an attractive market for crypto firms.”

The FCA cited concerns around the risks of excessive debt if consumers rely on volatile crypto prices to repay loans. A YouGov survey showed that the share of UK crypto investors using borrowed funds rose from 6% in 2022 to 14% in 2023.

The FCA also intends to block retail access to specialized crypto lenders and borrowers such as the now-defunct Celsius Network, which collapsed in 2022 during a broader industry downturn.

In addition, the regulator highlighted several structural issues in the crypto trading space, including market manipulation, opacity, liquidity challenges, unreliable trading infrastructure, and potential conflicts of interest.

To address these, trading platforms will be required to handle all transactions equally, separate their proprietary trading from client trading, and offer transparent pricing and trade execution information. Platforms will also be barred from compensating intermediaries for directing trades and must operate through an FCA-authorized legal entity in the UK.

Consumers who use staking services—which allow crypto holders to earn returns by lending out their assets—must be compensated for losses caused by third-party failures.

Decentralized finance (DeFi) platforms, which are controlled by code rather than centralized operators, will be exempt from the new rules unless they have an identifiable person or entity in control.

While warning that “most crypto assets remain high-risk and speculative—consumers should be prepared to lose all their money,” the FCA said its broader goal is to support responsible growth of the sector where feasible.