The UK Treasury has firmly rejected proposals by an all-party parliamentary committee for consumer trading in unbacked crypto such as bitcoin and ether to be regulated as gambling.
The committee in May called into question Government plans to regulate consumer crypto trading as a financial service, arguing that this will create a ‘halo’ effect, leading consumers to believe this activity is safe and protected, when it is not.
In presenting its conclusions, comittee chair Harriett Baldwin said the events of 2022 had highlighted the risks posed to consumers by the cryptoasset industry, “large parts of which remain a wild west”.
“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,” she said. “By betting on these unbacked ‘tokens’, consumers should be aware that all their money could be lost.”
In its reponse, the Treasury said it “firmly disagrees” with the Committee’s recommendations, arguing that such an approach would risk misalignment with international standards and potentially create unclear and overlapping mandates between financial regulators and the Gambling Commission
“Such an approach would run completely counter to globally agreed recommendations from international organisations and standard-setting bodies, including the International Organization of Securities Commissions and the G20 Financial Stability Board,” the Treasury retorted. “These recommendations are grounded in the principle of ‘same activity, same risk, same regulatory outcome’, meaning that any cryptoasset activity that performs a similar function, and poses similar risks, to those in the traditional financial system (for example, operating a trading platform or providing custody services) are subject to regulation that ensures equivalent outcomes.”
A system of gambling regulation could also fail to mitigate many of the critical risks that were discussed in a recent Government consultation on cryptoasset regulation, suggested the Treasury, including those associated with market manipulation, inadequate prudential arrangements, and deficiencies in core financial risk management practices.
“A financial services regulatory framework is more appropriate for addressing the risks of unbacked cryptoassets and creating the 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’.”