UK Treasury Committee “strongly” recommends cryptocurrency to be regulated as a form of gambling

The UK Treasury has “strongly recommended” that unbacked cryptocurrencies and assets should be regulated as a form of gambling rather than a financial service.

Delivering its report into regulating crypto after launching its inquiry in July, the Treasury Select Committee established that the inherent risks involved across the crypto space demanded more stringent regulation.

The committee’s cross-party group of MPs drew on both written and oral evidence during the assessment process and has concluded that the government must regulate the practice.

In a statement, the committee said: “We strongly recommend that the government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service, consistent with its stated principle of ‘same risk, same regulatory outcome’.

“Regardless of the regulatory regime, their price volatility and absence of intrinsic value means that unbacked cryptoassets will inevitably pose significant risks to consumers. Furthermore, consumer speculation in unbacked cryptoassets more closely resembles gambling than it does a financial service.

“We are concerned that regulating retail trading and investment activity in unbacked cryptoassets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not,” the statement concluded.

Citing evidence from contributors throughout the inquiry, the committee noted the overwhelming notion that the volatility of crypto meant that regulation was paramount.

The report referenced comments made by Financial Conduct Authority (FCA) CEO Nikhil Rathi, who said: “We want to make it 100% clear. People get a bit fed up with us because we keep saying it in all our statements and all our documents. You need to be ready to lose all your money if you go down this route.

“Whatever we do on regulation, we are not going to be able to put in place a framework that protects consumers from losses. It is really important we make this point here, through you, to the public. Under no circumstances whatsoever should people expect compensation through this,” Rathi added.

In a statement provided to the committee, the FCA further noted: “Crypto gambling addictions are rising and there are limited controls in place to protect vulnerable consumers.”

Elsewhere in its recommendations, the committee acknowledged it did recognise the “potential for some forms of cryptoassets and their underlying technologies to bring benefits to financial services and markets”.

This included improved efficiency and reductions in the costs of making payments, especially cross-border.

The committee also pointed out it was important for the government to keep abreast of the fast-paced developments in the sector and that it takes a “balanced” approach to supporting the industry but warned against “expending public resources on supporting cryptoasset activities without a clear, beneficial use case”.