Tommy Regiori Wilkes
LONDON (Reuters) – Britain said on Friday there was a move aimed at improving protection as crypto assets are being regulated for the first time by limiting consumers’ credit cards use, restricting access to encryption and crypto loan products.
This week, the Treasury said it will bring cryptocurrency under mandatory regulations, along with exchanges, dealers and publishers under existing rules books.
Crypto’s deals have exploded in popularity, with around 7 million people (about 12% of the adult population) owning crypto assets, but it is largely unregulated, the Financial Conduct Authority (FCA). Regulators maintain that if consumers invest, they must be “prepared to lose all their money.”
The government has announced a new draft to regulate the sector, saying it wants to crack down on “bad actors” while supporting legitimate innovation in the fast-growing industry.
The FCA is currently considering using Crypto’s borrowed funds to introduce curbs to retail investors.
“We are considering a variety of restrictions, including limiting credit card use to purchase credit card usage directly, and using credit lines provided by e-money companies to do so,” he said in a paper seeking feedback on the proposal.
Consumers are free to use their borrowed money to purchase Stablecoins, a digital currency that aims to maintain a fixed value compared to other assets such as US dollars issued by FCA-regulated companies.
Citing the commissioned survey, the FCA said 14% of crypto investors used their credits last year to buy Crypto from 6% in 2022.
Regulators are also considering limiting crypto assets lending and borrowing, including performing credit checks and testing consumer investment knowledge and experience.
CryptoAsset loans involve the owner lending crypto in return for the yield, but with CryptoAsset borrowing, the customer gets a loan from Crypto and later pays off the interest.
While a small portion of the market, crypto loans and borrowings presented a “risk of serious harm,” the FCA said it includes loss of ownership, liquidity risk, limited borrower credit checks and lack of consumer understanding.
He added that institutional investors will remain accessible.
Regulators also try to improve the transparency of “staking” and consumer understanding – lock digital tokens into the blockchain network in exchange for rewards. A study commissioned by the FCA found that 27% of UK adults who own codes use staking.