MPs criticise response to 'Wild West' of virtual currencies

MPs criticise response to 'Wild West' of virtual currencies

A committee of MPs has called for greater regulation of the "Wild West" of the cryptocurrency market.

The Treasury select committee has said the market was bedeviled with problems such as volatile prices, hacking vulnerabilities and minimal consumer protection. It also warned the anonymity provided by cryptocurrencies helped enable money laundering.

In a report on the issue of cryptocurrencies published this morning (19 September), which include Bitcoin and Ethereum, the committee criticised the government's current position as ambiguous, and said this was "not sustainable".

Article continues after advert

Last year the Financial Conduct Authority (FCA) issued a warning to investors, saying they should be prepared to lose all their money when investing in virtual currencies but the committee said this was a "feeble corrective" to the money being spent advertising cryptocurrencies.

Nicky Morgan, the committee's chairman, said: "This unregulated industry leaves investors facing numerous risks.

"Given the high price volatility, the hacking vulnerability of exchanges and the potential role in money laundering, the Treasury committee strongly believes that regulation should be introduced.

"It’s unsustainable for the government and regulators to bumble along issuing feeble warnings to potential investors, yet refrain from acting.

"At a minimum, regulation should address consumer protection and anti-money laundering. If the government decides that crypto-asset growth should be encouraged, appropriate and proportionate regulation could see the UK become a global centre for this activity."

The report called for the FCA to be given more powers to control how companies operating in this sector market their services by bringing their activities into the regulatory perimeter.

Despite their recent growth, crypto-assets and most initial coin offerings (ICOs) are currently not within the scope of FCA regulation and investors are currently afforded very little protection and there are no formal mechanisms for consumer redress or compensation.

The committee warned these assets were risky for inexperienced retail investors on account of their volatility alone, saying a number of people had been hacked, losing significant amounts of money.

The report drew particular attention to the issue of ICOs, which used by start-ups to get funding by issuing a new type of cryptocurrency to investors in exchange for fiat currency or another virtual currency.

These new cryptocurrencies are sold as either new units of currency in of themselves or they can be exchanged for a specific service at a discount.

The report said: "While there may be no explicit promise of financial returns, investors in ICOs clearly expect them: they are not buying tokens to gain access to as-yet unbuilt theme parks, or to obtain dental services in years to come, but in the hope of selling them at a profit.

"The development of ICOs has exposed a regulatory loophole that is being exploited to the detriment of ordinary investors. The regulated activities order should be updated to bring ICOs within the FCA’s perimeter as a matter of urgency, and bring investor protections into line with those in the United States."