Committee calls for trading in unbacked crypto to be regulated as gambling
Report concludes that cryptocurrencies pose significant risk to consumers
The Treasury Committee published a new report on regulating crypto on 17 May, which highlights the ‘significant risks’ posed to consumers by cryptocurrencies and calls for the trading of unbacked crypto by consumers to be regulated as gambling.
The area of particular concern for the Committee relates to consumer speculation in unbacked cryptoassets, the characteristics of which the Committee believes more closely resemble gambling. The report states that ‘We are concerned that regulating retail trading and investment activity in unbacked cryptoassets as a financial service will create a “halo” effect that leads consumers to believe that this activity is safer than it is, or protected when it is not.’ As such the Committee ‘strongly’ recommends that the government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service.
The Committee is of the view that effective regulation of cryptoassets should help foster innovation and maximise the potential benefits of such technologies for the UK, while also mitigating the risks. In this regard the report recommends that the government takes a balanced approach to supporting the development of cryptoasset technologies, which involves the avoidance of spending public resources on supporting cryptoasset activities without a clear, beneficial use case, which the Committee states appears to have been the case with the now-abandoned Royal Mint non-fungible token (NFT).
The report also recommends that the government and regulators strive to keep pace with developments, including by ensuring that the Financial Conduct Authority's authorisations gateway is open and effective, so that potential productive innovation in financial services is not unduly constrained.
Commenting on the new report, Harriett Baldwin MP, Chair of the Treasury Committee, said: “The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, large parts of which remain a wild west. Effective regulation is clearly needed to protect consumers from harm, as well as to support productive innovation in the UK’s financial services industry. However, with no intrinsic value, huge price volatility and no discernible social good, consumer trading of cryptocurrencies like Bitcoin more closely resembles gambling than a financial service, and should be regulated as such. By betting on these unbacked ‘tokens’, consumers should be aware that all their money could be lost.”