The Treasury committee has called for the government to regulate consumer trading in unbacked cryptoassets as gambling.
In a report published today (May 17), the cross-party group also hit out at the now-abandoned plans for a Royal Mint non-fungible token, saying it is not the government’s role to promote technological innovations “for their own sake”.
The committee said it is also concerned that regulating consumer crypto trading as a financial service (as has been previously proposed by the government) would result in a ‘halo effect’ leading consumers to erroneously believe that crypto trading is safe and protected.
The 28-page report said while the committee supports financial innovation where there are potential benefits, “the extent of the benefits cryptoasset technologies may bring to financial services remains unclear”.
In the meantime, it added, the risks posed by cryptoassets to consumers and the environment are real and present.
Harriett Baldwin, chair of the Treasury committee, said the events of 2022 highlighted the risks posed to consumers by the cryptoasset community, 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,” she said.
“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.”
Consumer trading of cryptocurrencies like Bitcoin more closely resembles gambling than a financial serviceHarriett Baldwin, treasury committeeWhile the extent of the benefits of cryptoasset technologies remain unclear, the risks posed by the asset class to consumers and the environment are “real and present”, the report said.
The committee said cryptocurrencies such at Bitcoin have no intrinsic value and serve no useful social purpose, while consuming large amounts of energy and being used by criminals in scams, fraud and money laundering.
In February, the government asked for industry views on the regulation of cryptoassets, highlighting a number of measures it plans to enact including bringing centralised crypto exchanges into financial services regulation.
While cryptocurrency is not currently regulated by the Financial Conduct Authority, digital asset service providers that operate in the UK must go through the regulator’s anti-money-laundering review process.
Around 85 per cent of crypto groups that attempted to obtain FCA registration have failed, leading to criticism from the industry that the UK has stifled innovation.
Under its proposals, the government plans to introduce a time limited exemption for firms currently authorised by the FCA so that they can continue to promote their services while a broader regulatory regime for crypto is introduced.
The government’s proposals are centred around a number of crypto activities, including exchange activities, custody activities and lending activities.
Under each of these the consultation sets out design features for the regime such as prudential requirements, data reporting, consumer protection, location policy and operational resilience.
It also proposes regimes for handling market abuse, crypto issuance and disclosures.
Calls for greater regulation of crypto grew following the sudden collapse of Sam Bankman-Fried’s $32bn empire, FTX late last year.
Back in November, a group of crypto executives told MPs they wanted more regulation and said FTX’s collapse may not have happened if proper regulation existed.
sally.hickey@ft.com
