A powerful group of multi-party MPs has called on the UK government to drop plans to regulate cryptocurrencies as a financial service and instead treat them like gambling.
The Treasury select committee said in a report that proposals The Financial Conduct Authority regulating the crypto industry could create “a ‘halo’ effect” that gives the impression that crypto is “more secure than it is” and could tempt people to put money into a speculative market that they should avoid.
“The events of 2022 have highlighted the risks that the crypto industry poses to consumers,” said Harriett Baldwin, chair of the committee, referring to when UK-based cryptocurrency holders lost hundreds of millions to fraudscandals like FTX and wild swings in cryptocurrency values.
“Without intrinsic value, enormous price volatility, and no discernible social good, consumer trading in cryptocurrencies like bitcoin looks 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 the government, which has just wrapped up a consultation on proposals for the FCA to regulate cryptocurrencies in the same way that 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 whether it would be willing or able 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 a track record of mitigating them,” the Treasury said.
“Cryptocurrencies offer opportunities, but we are taking an agile approach to strongly regulate the market, addressing the most pressing risks first in a way that promotes innovation,” they added.
The TSC wants 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 both regimes.
Sam Richardson, deputy editor for 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 under the gambling regime it would offer more or less protection to consumers.
gambling companies are required 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 consumer duty that will require companies to provide fair results.
The FCA said it appreciated “the Treasury select committee’s input into the ongoing discussion on UK crypto asset regulation,” adding that it has been “working closely with the government” and awaits “the outcome of your inquiry and subsequent new legislation”. ”.
The TSC report on crypto regulation also criticized the government for asking Royal Mint to create a non-fungible token (NFT) “as part of the Chancellor of the Exchequer’s ambition to make the UK a global hub for crypto asset technology and investment.”
“He [the government] it should try to avoid spending public resources in supporting crypto-asset activities without a clear and beneficial use case, as seems to have been the case with Royal Mint NFT,” the TSC said.
The FCA already has limited oversight of cryptocurrency businesses and acts as an anti-money laundering watchdog for registered entities. Soon you will be able to police announcements by crypto companies based in the UK and abroad.
The UK government’s approach to crypto regulation is largely in line with markets like the EU and US, where securities and financial regulators are taking on more responsibilities.
The city groups had already warned the UK on its crypto regulation proposals, 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 money in crypto products.
Later that year, the FCA said that Binance, by far the world’s largest crypto exchange, could not be regulated after it failed to respond to basic inquiries. The company have since said it intends to be regulated in the UK.