UK Financial Conduct Authority to Prohibit Retail Borrowing of Cryptocurrencies, Strengthens Regulations on Digital Assets
FCA Cracks Down on Crypto Market, But What About DeFi?
In an attempt to rein in the booming cryptocurrency market, the Financial Conduct Authority (FCA) of the United Kingdom has rolled out some new rules. One of these rules will prevent folks from using credit cards, or getting into debt, to buy digital currencies like Bitcoin.
The FCA is particularly concerned about protecting people from drowning in debt in case the crypto market takes a unexpected plunge. A survey by YouGov revealed that 14% of UK crypto buyers borrowed money last year, a jump from the 6% seen in 2022.
The FCA isn't just targeting regular people, such as retail investors. Cryptocurrency businesses, including trading platforms, intermediaries, and lenders, are also getting the stricter treatment.
According to reports, the FCA will prohibit platforms from accepting payments for directing customer orders and require UK crypto firms to operate through authorized local entities. Staking services will be responsible for reimbursing losses from third-party actions.
However, the new rules won't apply to decentralized finance (DeFi) systems that don't have a central controlling party. The FCA has also cautioned that crypto is a high-risk venture, and people could potentially lose all their money in it.
Despite the tough stance, the FCA hopes to strike a balance between promoting the growth of the crypto industry and ensuring its safety. David Geale from the FCA has emphasized that while crypto has potential benefits for the UK, it needs to be handled responsibly. He clarified that the FCA isn't against the crypto industry; instead, it aims to create a safe environment for its development.
The FCA is also working to prevent retail investors from accessing high-risk crypto lenders like Celsius Network, which encountered issues in 2022. Crypto firms have already faced challenges with the FCA's anti-money laundering rules, with 75% of applications rejected last year, down from 86%.
Many industry leaders, like Xapo Bank's Joey Garcia, support the FCA's cautious approach, noting its potential international impact.
As for the future, the FCA plans to implement these new rules gradually. The specifics are currently under public review, with the final rules expected later in the year. The new authorization framework is anticipated by 2026.
Read More: BlackRock Makes Its Way into the UK Crypto Market with FCA Registration
Unveiled Proposals:- Expanded Authorization: Crypto businesses must seek FCA authorization for various activities, including stablecoin issuance, custody, trading platform operation, and arranging transactions in "qualifying cryptoassets."- Isolated Proprietary Trading: Trading platforms must separate proprietary trading from retail customer activities.- Pricing Transparency: Clear disclosure of execution methods and pricing practices is mandatory.- Credit Card Ban: A proposed ban on using credit cards or electronic money institution credit lines for direct crypto purchases.- Order Flow Prohibitions: Platforms cannot pay intermediaries for directing customer orders.- Compliance Timeline: Rules expected after further consultation later in the year, with the new authorization framework anticipated by 2026.- DeFi Exemptions: Truly decentralized platforms without a controlling party may avoid authorization requirements, but FCA will assess whether centralized governance exists in DeFi projects.
- The Financial Conduct Authority (FCA) of the United Kingdom is preventing folks from using credit cards to buy cryptocurrencies like Bitcoin, a move intended to protect people from incurring debt in the volatile crypto market.
- The FCA's new rules aren't just targeted at retail investors; cryptocurrency businesses, including trading platforms, intermediaries, and lenders, are also subject to stricter treatment.
- The FCA plans to prohibit platforms from accepting payments for directing customer orders and require UK crypto firms to operate through authorized local entities, with staking services responsible for reimbursing losses from third-party actions.
- However, truly decentralized finance (DeFi) systems that don't have a central controlling party are exempt from these authorization requirements, but the FCA will assess whether centralized governance exists in DeFi projects.
- Despite the tough stance, the FCA is working to promote the growth of the crypto industry while ensuring its safety, and is currently petitioning for expanded authorization for various crypto activities.
