UK to ban credit cards for crypto purchases

London: The UK will ban consumers from using credit cards to purchase cryptocurrencies and impose restrictions on crypto lending products, according to the Financial Conduct Authority (FCA).

This move comes as the government prepares comprehensive regulations for the crypto sector.

The FCA aims to bring cryptocurrency exchanges, dealers, and issuers under existing financial rules to enhance consumer protection, as cryptoassets remain largely unregulated.

The FCA has proposed restricting retail investors from using borrowed funds, like credit cards and credit lines, to buy cryptoassets. However, they can still use credit for stablecoins issued by FCA-regulated companies.

The FCA also plans to improve transparency around “staking,” where digital tokens are locked in blockchain networks for rewards.

The UK’s new crypto regulation marks another step in a notable regulatory divergence between major financial jurisdictions, with each taking distinct approaches to manage crypto risks.

While the EU’s comprehensive Markets in Crypto-Assets Regulation (MiCA) aims to standardize rules across member states, the UK is implementing a more phased approach, prioritizing specific high-risk activities like crypto lending and credit-based purchases1.

This contrasts with the US’s fragmented regulatory landscape, where multiple agencies including the SEC, CFTC, and FinCEN oversee different aspects of crypto markets, creating a complex compliance environment for businesses operating across borders2.

The regulatory differences create strategic considerations for crypto businesses, with some potentially relocating to jurisdictions offering more favorable treatment while still maintaining consumer protections.

Historical patterns suggest that well-regulated financial innovation tends to concentrate in jurisdictions that provide both regulatory clarity and reasonable oversight, as seen previously with derivatives markets and fintech development.

The sharp increase in UK consumers using credit to purchase cryptocurrencies—rising from 6% in 2022 to 14% in 2023—mirrors concerning patterns of financial overextension seen in previous speculative markets3.

This trend has parallels to pre-2008 financial crisis behaviors when consumers increasingly used credit cards and home equity loans to make speculative investments, highlighting how easy access to credit can amplify financial risks during periods of market enthusiasm4.

Research by the FCA indicates that a significant portion of crypto investors have limited understanding of the risks involved, with many unable to identify basic warning signs of fraudulent schemes or market manipulation tactics5.

The regulatory focus on credit-based crypto purchases specifically targets a known behavioral finance vulnerability: people tend to take greater risks with borrowed money than with their own savings, particularly in volatile asset classes.

Consumer research in the UK crypto market shows the average crypto holding stands at approximately £1,842, suggesting many retail investors are committing meaningful portions of their financial resources to highly volatile digital assets