Following a new inquiry into the industry, the Parliamentary Treasury Committee has called on the UK government to start regulating cryptocurrency trading as a form of gambling rather than a financial service.
Why effective regulation is needed:
In a report issued on Wednesday, MPs said: “The government must avoid wasting more taxpayer funds promoting tech innovations such as digital tokens, without demonstrating the clear benefits to the public.” Furthermore MPs concluded that “like gambling, cryptocurrency trading and investing can be addictive.”
And although the underlying blockchain technology could bring many benefits in the broader financial services industry, the process of wagering on the fluctuating price of an unbacked asset like bitcoin could result in consumers losing huge sums of cash. In this regard, the Conservative MP and Chair of the Treasury Committee, Harriett Baldwin, said: “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.”
Plans to officially regulate cryptocurrencies are currently under consideration:
Government’s intentions to officially regulate cryptocurrencies could be affected by the recommendations. In addition, the plans are being reviewed following a consultation earlier this year. Furthermore, it has been widely predicted that cryptocurrency trading will ultimately fall under the Financial Conduct Authority, which is right now responsible for making sure that firms comply with money-laundering rules and will soon be given oversight of advertisements.
However, the Treasury Committee said: “Treating cryptocurrency trading or investing like a financial service and regulating it via the FCA risked creating a halo effect that could lead consumers to believe the industry was safer than it is or that they were protected from financial losses, when they are not.”
The report said that “regulating cryptocurrencies as gambling would be consistent with the government’s principle of same risk, same regulatory outcome.” It also highlighted the government’s recent try to produce an irreplaceable token through the Royal Mint. NFTs are one-of-a-kind digital advantages stored on a blockchain, the same decentralized ledger of transactions used to purchase and sell cryptocurrencies like bitcoin. However, the project, criticized by Labour as a “crypto gimmick” was written off in March, just under a year after the project was reported. In this regard, the Treasury Committee said that “it was calling on the government to take a balanced approach to technology and avoid expending public resources on supporting cryptoasset activities without a clear, beneficial use case. The failed NFT project was a case in point. It is not the government’s role to promote particular technological innovations for their own sake.”
Additionally, the Treasury and the CryptoUK industry group have been contacted for comment on this.