UK regulator cracks down on crypto leverage—because nothing says ’consumer protection’ like shutting the barn door after the bull run

The FCA swings its regulatory hammer at crypto lending and credit purchases—just in time to ’save’ retail investors from risks they’ve been taking for years.

New rules target platforms offering leveraged exposure, forcing them to play by traditional finance’s rulebook. Because if there’s one thing crypto loves, it’s centralized oversight.

Critics whisper this is less about protection and more about control—after all, what’s a financial watchdog without something to bark at?

Crackdown on crypto lending

Among the proposed measures is a clampdown on crypto lending services. The FCA is concerned about platforms offering individual users lending and borrowing products.

The regulator cited the collapse of firms like Celsius Network in 2022, which reflected the dangers of unregulated lending in crypto. It stated that this business model holds significant risks that could lead to losing crypto ownership, counterparty risks, and conflicts of interest.

It also noted that:

“Yield generation in cryptoasset lending is speculative because the returns are not fixed, and consumers typically do not know exactly how their cryptoassets are being used to generate those returns.”

While it conceded that only 9% of crypto holders engaged in such activities in the 12 months leading up to August 2024, the regulator believes the risks remain significant.

Due to this, the FCA plans to restrict retail access to these services entirely, stating that they are not suitable for the average investor in their current form.

Crypto credit purchase

The regulator is also considering limits on using credit to purchase crypto, pointing out the increased popularity of such practices.

According to the FCA, figures from a YouGov poll show that while just 6% of investors used borrowed money to buy crypto in 2022, that number had risen to 14% by 2023.

FCA noted that this trend can drive households into unsustainable debt, especially when repayment hinges on volatile asset values.

It added:

“The potential for impulsive crypto purchases can also increase the risk of overindebtedness. Credit also usually carries interest charges and fees, which can increase if the balance is not repaid. Failure to repay could also result in the consumer’s credit score being downgraded, which can affect their ability to get both loans and lower interest rates in the future.”

The FCA noted that while some banks and payment firms have already restricted such purchases, many crypto platforms still promote them.

So, the financial regulator is considering a full ban on using credit cards or e-money credit lines to buy crypto. However, stablecoins issued by FCA-authorized entities may receive exemptions.

Trading concerns

The FCA also intends to tighten oversight of crypto trading platforms to protect retail customers.

The regulator flagged several platform issues, including poor liquidity, lack of transparency, and potential conflicts of interest. As a result, new rules would require platforms to separate their trading activity from that of their customers.

Under the proposed changes, platforms will need to provide transparent data on pricing and execution. The FCA also plans to prohibit firms from paying intermediaries in exchange for directing trade orders.

Meanwhile, all crypto businesses serving UK users must register a local legal entity and comply with domestic regulations. This requirement will apply to retail-focused firms and those catering to institutional clients.