The government has re-affirmed its intention to regulate retail trading in unbacked cryptoassets as a financial service.
Its stance is contained in a Treasury Select Committee report published today (20 July).
The government’s line is a response to the committee’s report called Regulating Crypto where it called for consumer trading in unbacked crypto to be regulated as gambling.
Unbacked cryptoassets – often called cryptocurrencies – are not supported by any underlying asset.
They are the most prominent form of crypto, with Bitcoin and Ether alone accounting for two-thirds of all cryptoassets.
Given their price volatility and the risk of losses, the committee concluded that retail trading in unbacked crypto more closely resembles gambling than a financial service and should be regulated as such.
It outlined concerns that regulating consumer crypto trading as a financial service – as proposed by the government – would create a ‘halo’ effect.
That could lead consumers to believe this activity is safe and protected, when it is not.
The MPs recognised that technologies underlying cryptoassets may bring benefits to financial services, particularly for cross-border transactions and payments in less developed countries.
And also called on the government and regulators to keep pace with developments so potentially productive innovations are not unduly constrained.
In its response, the government disagreed with the committee’s recommendation on gambling.
It said that such an approach would run completely counter to globally agreed recommendations from international organisations and standard-setting bodies.
These including the International Organization of Securities Commissions (IOSCO)1 and the G20 Financial Stability Board (FSB).
The committee’s proposed approach would therefore risk creating misalignment with international standards and approaches from other major jurisdictions including the EU.
And potentially create unclear and overlapping mandates between financial regulators and the Gambling Commission.
The government also pointed out that a financial services regulatory framework better addresses the risks of unbacked cryptoassets and creates conditions for safe innovation.
This can – and will – come with a set of robust measures to mitigate consumer risks mentioned in the committee’s report, including the risks of “consumers getting misinformed”.
The government added it is already taking concrete action on this, through the introduction of a dedicated financial promotions regulatory regime for cryptoassets.
And legislation was laid before parliament and debated last month, and will be in force by late 2023.
Proposals included the Treasury’s recent consultation also seek to ensure consumers have access to accurate information when making investment decisions.
For example, through the introduction of a robust issuance disclosure regime.
Around 10% of UK adults hold or have held cryptoassets, according to HM Revenue & Customs.
