Today the UK’s cross-party parliamentary Treasury Committee published a report recommending that the government regulate crypto-assets as gambling rather than financial services. It is concerned that government plans to regulate cryptocurrency activities as a financial service will give the sector a halo effect. Hence consumers might believe that it is a safe and protected activity.
“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,” said Harriet Baldwin, Chair of the Treasury Committee in a statement. “By betting on these unbacked ‘tokens’, consumers should be aware that all their money could be lost.”
The position is in marked contrast to the government’s stance, with the current Prime Minister Rishi Sunak proposing that the UK become a global hub for cryptoasset technology during his stint as the UK’s Chancellor in April 2022. Given the importance of financial services to the UK economy, the approach is logical. In February, HM Treasury (HMT) opened a consultation on the topic.
A 2021 survey by the regulator, the Financial Conduct Authority (FCA), found that 38% of crypto investors viewed their holdings as a ‘gamble’. That could be one of the inspirations.
The report also said the FCA needs to keep up following delays in reviewing crypto service providers for AML activities. Additionally, it criticized the Royal Mint’s abandoned NFT efforts.
While the publication focused on cryptocurrency, blockchain only faired slightly better. The Committee acknowledged that it might be useful for cross border payments, but the use of DLT in capital markets didn’t get a mention. That said, the UK considers security tokens as already regulated, so there is perhaps little for debate.
Unsurprisingly the response was swift and definitive. “The Treasury’s statement is in direct conflict with HMT’s consultation proposals on bringing activities, including operating a trading venue and performing intermediary activities, into the existing financial regulatory perimeter,” said Ian Taylor, Board Advisor to CryptoUK who attended a Committee hearing.
“Furthermore, gambling is exempt from capital gains tax. Does the Government really wish to exclude tens of millions of pounds in tax income from gains made by the buying and selling of unbacked crypto assets?”
However, Taylor acknowledged the risks involved, saying they can be addressed with education and a suitable regulatory framework.