Trading in so-called “unsecured cryptoassets” like bitcoin (BTC) and ether (ETH) should be regulated as gambling, not a financial service, a panel of UK lawmakers said in a new report.
The UK is currently working on a crypto regulatory framework that would combine existing financial asset laws with new crypto-specific rules.
However, in a May 17 report by the House of Commons Committee, the UK Treasury Committee “strongly” recommended that retail crypto trading and investing be regulated as gambling, in line with the principle of “equal risk, equal regulatory outcome.”
It has been argued that price volatility and lack of intrinsic value would mean that unsecured crypto assets “inevitably pose significant risks for consumers.”
Finance Committee Chair Harriett Baldwin described that bitcoin and ether accounted for two-thirds of the total crypto asset market cap, which she says are both “naked.”
“We fear that regulating retail trade and investment activity in unsecured cryptoassets as a financial service will create a halo effect, leading consumers to believe that this activity is safer than it is, or that it is protected when it is not is.”
In the UK all gambling – whether online or land-based – is regulated by the Gambling Commission under the Gambling Act 2005. Their oversight includes companies such as bingo halls, lotteries, betting shops, online betting companies and casinos, among others.
Chart used by the committee as evidence of cryptocurrency volatility. Source: Yahoo Finance, UK Parliament
In its arguments, the legislature referred to written statements by Dr. Larisa Yarovaya, an associate professor at the University of Southhampton, who said crypto exchanges, online trading platforms and other crypto asset businesses should be regulated with the same rigor as crypto speculation “can be addictive.”
In a small victory for crypto, the committee said it also recognized the potential of some crypto assets and their underlying technology to bring benefits to financial services and markets — such as reducing the cost of cross-border payments and improving financial inclusion.
It states that there should be an effective regulatory framework to support these developments in the UK while mitigating some of the risks associated with crypto assets.
Excerpt from the Report of the Fifteenth Session 2022-23. Source: British Parliament
“We therefore welcome the government’s release of proposals on how it intends to regulate cryptoassets used in financial services,” the committee wrote.
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Including Chair Harriet Baldwin, who was once Economic Secretary at the Treasury, the Committee is made up of 11 MPs from the Labor, Conservative and Scottish National Parties.
The committee said it launched its crypto industry inquiry in July 2022 to examine the role of cryptoassets in the UK
A survey conducted last year by His Majesty’s Revenue and Customs (HMRC) – the country’s tax authority – found that 10% of UK citizens own or have owned cryptocurrencies, with more than 55% having never sold any.
Chainalysis ranked 17th for the UK in the 2022 Crypto Adoption Index.
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