June 6, 2023

An influential panel of MPs has called on the government to regulate the trading and speculation of consumer crypto as a form of gambling.

The cross-party Treasury Committee claimed digital currencies such as Bitcoin and Ether have “no intrinsic value and no useful social purpose” – and as well as consuming large amounts of energy, they are often used by criminals for scams.

It comes after the government announced proposals in February to regulate the crypto industry by bringing it under the Financial Services Act.

But MPs said a better approach would be to recognize how speculation in unsupported crypto assets – such as Bitcoin – is “more like gamble than a financial service”.

It recommended instead applying protection rules that oversee lotteries, gambling companies and casinos.

According to HM Revenue and Customs, around 10% of adults in the UK have speculated in cryptoassets.

The commission’s new report warned that digital currencies pose a “significant risk” due to “huge” price volatility, with the potential for clients to lose everything they invest.

It said there was evidence that addictions to cryptocurrency speculation mounted – warning that limited controls are currently in place to protect vulnerable consumers.

MPs said they were concerned that bringing the industry under the regulation of financial services “will create a ‘halo’ effect that leads consumers to believe that this activity is more secure than it is, or protected if it is not”.

“We therefore strongly recommend that the government regulate retail and investment activities in unsupported crypto-assets as gambling rather than a financial service, in line with the stated principle of ‘same risk, same regulatory outcome,’” the report added. up to it.

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A ‘Wild West’ industry

It comes after a 2018 report from the commission described the cryptocurrency industry as a “Wild West” – with MPs saying nothing in their subsequent inquiries led them to change that verdict.

Commenting on the new report, Committee Chair, Conservative MP Harriett Baldwin said: “Effective regulation is clearly needed to protect consumers from harm and support productive innovation in UK financial services.

“However, with no intrinsic value, massive price volatility, and no discernible social good, the consumer trade in cryptocurrencies like Bitcoin resembles gambling more than a financial service, and should be regulated as such.”

The MPs said they still felt there was potential in the technology – for example improving the efficiency and cost of making payments – and advised the government to take a “balanced approach” in supporting innovation.

The commission added that it was separately considering the potential role of digital currencies backed by central banks.

Meanwhile, the report also criticized that of the government April 2022 attempt to launch a non-fungible token (NFT) – a type of cryptocurrency asset – through the Royal Mint. The plan was scrapped earlier this year after a review.

MPs said the government “should try to prevent public funds from being spent on supporting crypto-asset activities without a clear, beneficial use case”.

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Crypto ‘offers opportunities’

It comes when the government incorporates the responses to a consultation into its regulatory proposals.

A spokesman for the Ministry of Finance indicated that ministers would likely reject the committee’s recommendation.

They told Sky News: “The risks of crypto are typical of those that exist in traditional financial services and it is the regulation of financial services – rather than the regulation of gambling – that has a track record of reducing them. .

“Crypto presents opportunity, but we are taking a flexible approach to vigorously regulating the market, addressing the most pressing risks first in a way that fosters innovation.”

The report comes amid increasing pressure on governments around the world to better regulate the industry, amplified by the sudden bankruptcy of crypto platform FTX in November.

About 80,000 UK-based customers were affected by the collapse, as was one UK investor left with a £1 million hole in his finances.

The European Union this week passed stricter crypto-asset regulations — including new powers to ban exchanges that fail to protect consumers.

The International Organization of Securities Commissions (IOSCO), whose members include regulators in the US and UK, said it will soon also announce proposals for the first-ever set of global crypto trading rules.