The UK government has recommended that retail trading and investment in “unbacked crypto assets, such as Bitcoin and Ether,” be regulated as gambling. This recommendation is part of a recent House of Commons Treasury Committee report which examines the potential impacts of crypto assets on the financial services landscape. The report acknowledges the potential benefits of crypto assets, such as improving the efficiency and reducing the cost of making payments, but emphasizes the “significant risks” associated with them, including price volatility, high energy consumption, and usage in scams, fraud, and money laundering.
The report highlights the government’s proposals to regulate crypto assets within the financial services sector “to foster innovation, maximize potential benefits,” and mitigate risks. It draws parallels between crypto and gambling due to significant price volatility, recommending a similar approach to regulation. The recommendation to regulate trading and investment in unbacked crypto assets as gambling rather than a financial service is rooted in the principle of “same risk, same regulatory outcome.” However, the report acknowledges criticisms of this, arguing that it could create a “halo effect, leading consumers to believe that this activity is safer than it is or protected when it is not.”
While the report may be overly critical of the crypto sector, it reiterates the government’s approach to fostering innovation while protecting consumers. To strike an equitable balance between these two objectives, government legislators seek to bring crypto assets within the Financial Services and Markets Act 2000 (FSMA) framework, which governs various financial services. However, the report seeks to pull back on new innovations and, instead, focus on reducing the “significant risks posed by crypto assets to consumers and the environment [which] are real and present.”