The UK Treasury has firmly rejected proposals from an all-party parliamentary committee suggesting that consumer trading in unbacked cryptocurrencies like bitcoin and ether should be regulated as gambling.
In May, the committee questioned the government’s plans to regulate consumer crypto trading as a financial service, arguing that it could create a ‘halo’ effect, misleading consumers into thinking these activities are safe and protected, despite the inherent risks. Committee chair Harriett Baldwin noted that the events of 2022 underscored the dangers posed to consumers by the cryptoasset industry, which she described as “large parts of which remain a wild west.”
Baldwin stated, “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. By betting on these unbacked ‘tokens,’ consumers should be aware that all their money could be lost.”
In its response, the Treasury expressed strong disagreement with the committee’s recommendations, contending that this approach could create misalignment with international standards and lead to overlapping responsibilities between financial regulators and the Gambling Commission.
The Treasury asserted, “Such an approach would run completely counter to globally agreed recommendations from international organizations and standard-setting bodies, including the International Organization of Securities Commissions and the G20 Financial Stability Board. These recommendations are based on the principle of ‘same activity, same risk, same regulatory outcome’, meaning that any cryptoasset activity performing a similar function and posing similar risks to those in the traditional financial system should be subject to equivalent regulation.”
Furthermore, the Treasury suggested that a gambling regulatory framework might not adequately address critical risks discussed in a recent government consultation on cryptoasset regulation, including issues related to market manipulation, insufficient prudential arrangements, and deficiencies in fundamental financial risk management practices.
“A financial services regulatory framework is more suitable for tackling the risks associated with unbacked cryptoassets and fostering an environment for safe innovation. This will include robust measures to mitigate consumer risks highlighted in the committee’s report, such as the dangers of misinformation.”