The government’s proposal to regulate crypto as a financial service has suffered a setback as there have been calls from a cross-party group to instead view the industry as if it was gambling.
A report from the strengthened group highlighted the risks involved with current proposals, which it believes may well portray crypto in the wrong light and fall short of making consumers aware of the risks in the space.
Nonetheless, the group has stated that it is looking at the potential of a central bank digital currency in a different light.
Commenting on the report, Harriett Baldwin MP, Chair of the Treasury Committee, said: “The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, 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.
“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.”
The group pointed to price volatility and absence of intrinsic value as being key evidence in the significant risks involved with crypto and why it should be treated under the similar regulatory framework as gambling products.
That being said, the calls were met with criticism from the crypto sector – as CryptoUK warned of the obstacle the plans could have on the growth of the space in the UK.
Commenting on the consultation, Su Carpenter, Director of Operations at CryptoUK, said: “We believe that a regulatory regime for cryptoassets is key to enabling the UK to be competitive as a destination for the fast growing cryptoasset market.
“We support the ‘same risk, same regulatory outcome’ approach and continued UK commitment to the development and promotion of international standards, given the cross-border nature of the crypto-asset industry.
“We would welcome the UK taking a leading role in promoting safe and orderly cryptoasset markets given that this will both support the further development of the crypto industry as well as the competitiveness of the UK as a destination for crypto firms.
“We welcome proactive engagement with industry by the HMT and Financial Conduct Authority (FCA) in preparation of both a UK crypto asset regulatory framework.
“We suggest taking a broader view at all of the enablers for the UK to deliver on its ambition to become a global hub for the crypto industry, which includes a proportionate application of FinProm rules to trading venues, addressing concerns of de-banking by the crypto industry and progressive tax policy that addresses the nuances of the asset class.”
Providing an outlook for what they believe the regulatory framework should look like, Carpenter detailed the importance of ‘a predictable and transparent registration process’, adding that ‘custody and safekeeping of client assets is fundamental to building consumer trust’.
