A powerful group of cross-party lawmakers has called on the UK government to abandon plans to regulate cryptocurrencies as a financial service and instead treat them as gambling.
The Treasury Select Committee said in a report that proposals for the Financial Conduct Authority regulating the cryptocurrency industry could create “a ‘halo’ effect” that gives the impression that cryptocurrencies are “safer than they are” and could lead people to invest money in a speculative market that they should avoid.
“The events of 2022 have highlighted the risks posed to consumers by the cryptocurrency industry,” said Harriett Baldwin, chair of the committee, referring to when UK-based crypto holders lost hundreds of millions to fraudscandals like FTX and wild swings in cryptocurrency values.
“With no intrinsic value, massive price volatility, and no discernible social good, the consumer trade of cryptocurrencies like bitcoin look more like gambling than a financial service and should be regulated as such,” he added.
A person familiar with the TSC’s position said it was taking a “very different approach” to that of the government, which just closed a consultation on proposals for the FCA to regulate cryptocurrencies in much the same way it oversees the issuance and trading of stocks and bonds.
The Gambling Commission, which has a staff of around 300, did not immediately respond to a request for comment on its willingness or ability to regulate the cryptocurrency industry.
“The risks posed by cryptocurrencies are typical of those that exist in traditional financial services and it is financial services regulation – rather than gambling regulation – that has the proven track record of mitigating them,” the Treasury said.
“Cryptocurrencies offer opportunities, but we are taking an agile approach to robustly regulate the market, first addressing the most pressing risks in a way that fosters innovation,” they added.
The TSC is keen to avoid creating the perception that cryptocurrencies are a legitimate investment, according to a person familiar with the matter, and the report did not focus on the details of the protections under either regime,
Sam Richardson, deputy director of money at consumer advocacy group Which?, said it was “right that MPs are highlighting the risk of investors being exposed to unscrupulous companies or individuals”, but declined to comment on whether to fall within the gambling regime would offer more or less consumer protection.
Gambling companies are necessary to “treat customers fairly”, while the FCA has a much more detailed set of rules on trading and issuing securities and will soon impose a new duty on consumers that requires companies to deliver fair results.
The FCA said it welcomed “input from the Treasury Select Committee to the ongoing discussion on UK cryptocurrency regulation,” adding that it has “worked closely with the government” and looks forward to “the outcome of its consultation and the subsequent new legislation ”.
The TSC report on cryptocurrency regulation also criticized the government for asking the Royal Mint to create a non-fungible token (NFT) “as part of the Exchequer’s ambition to make the UK a global hub for technology and cryptocurrency investment.”
“It [the government] it should try to avoid spending public resources to support cryptoasset businesses without a clear and beneficial use case, as appears to have been the case with the Royal Mint NFT,” the TSC said.
The FCA already has limited oversight of cryptocurrency activities and acts as an anti-money laundering supervisor for registered entities. He will soon be able to police advertising by crypto companies based in the UK and overseas.
The UK government’s approach to regulating cryptocurrencies is broadly in line with markets like the EU and the US, where securities and financial regulators are taking on more responsibility.
Citizen groups had already done it cautioned the UK on its proposals to regulate cryptocurrencies, warning that the plans could offer legitimacy to a dangerous market.
The FCA warned in 2021 that consumers should be “prepared to lose all their money” if they invest in crypto products.
In the same year, the FCA said that Binance, by far the largest cryptocurrency exchange in the world, could not be regulated after failing to answer basic questions. The company has since said intends to be regulated in the UK.
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