Firms would be restricted from selling crypto to retail investors on credit and from engaging in lending activity with retail clients, under new proposals from the U.K.’s Financial Conduct Authority (FCA).
The regulator issued a consultation paper that seeks feedback on regulation for certain crypto activities, including proposed curbs on allowing investors to buy cryptoassets on credit.
“We are concerned that consumers buying crypto assets with credit may take on unsustainable debt,” it said, adding that “The potential for impulsive crypto purchases can also increase the risk of over- indebtedness.”
The regulator is also worried about the fees and interest charges that can accompany credit purchases and the possible impact on investors’ credit scores.
As a result, the FCA said that it’s considering various approaches, including restricting the use of credit cards and lines of credit to buy crypto assets.
The paper also covers issues involved with staking, borrowing and lending, and decentralized finance generally.
Among other things, the proposals would prohibit crypto trading platforms from acting as a clearing house, and from providing credit to clients. And, they aim to curb the risks from crypto asset lending and borrowing.
“Given the potential risks to consumers from the current structure of crypto asset lending and borrowing models, we do not consider these products to be suitable for retail consumers in their existing form,” the paper said. “We are therefore proposing to restrict firms from offering these products to retail consumers in their current structure.”
The paper comes in the wake of draft legislation that aims to bring specific crypto activities under the FCA’s remit.
Currently, the regulator’s oversight of the crypto sector is limited to enforcing compliance with the anti-money laundering rules and certain consumer protection laws.
Later this quarter, the FCA will also be issuing a paper consulting on proposed rules and guidance for other crypto activities, such as issuing stablecoins, safeguarding crypto assets and specified investment vehicles.
And, in the third quarter, it will be consulting on the treatment of crypto activities under its broader conduct and firm standards, such as the Consumer Duty.
“Crypto is a growing industry. Currently largely unregulated, we want to create a crypto regime that gives firms the clarity they need to safely innovate, while delivering appropriate levels of market integrity and consumer protection,” said David Geale, executive director of payments and digital finance at the FCA, in a release.
“Our aim is to drive sustainable, long-term growth of crypto in the U.K. We’re asking whether we have got the balance right,” he said.
The paper is out for comment until June 13. The FCA said that it will consult on final rules later this year, after incorporating the feedback received on this paper into its proposals.