The panel of British lawmakers has recommended that the trading of unbacked cryptoassets such as Bitcoin (BTC) and Ether (ETH) should be regulated as gambling instead of a financial service. The United Kingdom is currently working on a crypto regulatory framework that would combine existing financial asset laws with new crypto-specific rules. However, the U.K. Treasury Committee “strongly recommended” regulating retail trading and investment in crypto as gambling to correspond with the principle of “same risk, same regulatory outcome.”
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We’ve just published our report on cryptoassets, setting out our recommendations for the Government’s approach to regulating this market.
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— Treasury Committee (@CommonsTreasury) May 16, 2023
The lawmakers argued that unbacked crypto assets will “pose significant risks to consumers” due to price volatility and a lack of intrinsic value. Treasury Committee Chair Harriett Baldwin claimed that Bitcoin and Ether represent two-thirds of the total market capitalization of crypto assets, both of which are “unbacked.” The committee is concerned that regulating retail trading and investment in unbacked cryptoassets as a financial service will create a sense of security among consumers that is neither valid nor protected, thus leading to the dangers that gambling represents.
In the U.K., all gambling—including online or via land-based means—is regulated by the Gambling Commission under the Gambling Act 2005. Its oversight includes businesses such as casinos, online betting companies, bingo halls, lotteries, and betting stores, with the aim of preventing problem gambling and enforcing Anti-Money Laundering safeguards.
The lawmakers referred to written statements from Dr. Larisa Yarovaya, an associate professor from the University of Southhampton, who said crypto exchanges, online trading platforms and other crypto-asset businesses should be regulated with the same stringency as crypto speculation “can be addictive.” Despite the risks, the committee acknowledged the potential benefits of some crypto assets and their underlying technology in finance and markets, but cautioned that the industry should be efficiently regulated to mitigate risks associated with crypto assets.
“We therefore welcome the Government publishing proposals for how it plans to regulate cryptoassets used in financial services,” the Committee wrote. The committee is made up of 11 members of Parliament from the Labor and Conservative parties, as well as the Scottish National Party, including Baldwin, who was once the economic secretary to the Treasury.
The committee launched its inquiry into the crypto industry last July to explore the role of cryptoassets in the U.K. Research conducted by His Majesty’s Revenue and Customs (HMRC) revealed last year that 10% of U.K. citizens hold or have held crypto, with more than 55% having never sold any. The United Kingdom was ranked 17th in the 2022 Chainalysis crypto adoption index.
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