The government has rejected the recommendation of a committee to regulate crypto trading.
This rejection was in response to a report by the House of Commons Treasury Committee on regulation of cryptocurrency trading.
The committee’s conclusion was that “unbacked cryptoassets are worthless and have a volatile price, exposing consumers to substantial losses or gains, without any social benefit.”
The evidence of the consumer’s behaviour reinforces this impression.
Andrew Griffith, the Treasury’s economic secretary, has rejected this call.
Financial services model for crypto regulation
Griffith explained that the Treasury acknowledges the urgency of regulation and many consumer risks outlined in the report. It “strongly disagrees” however with the conclusion of the committee.
According to the junior minister, the Treasury rejected the request for several reasons. The reasons were as follows:
- This could lead to a misalignment of international standards.
- There is a risk of blurring the lines between financial regulators and gambling regulators.
- The unique risks of trading in crypto currencies would be ignored.
- The Gambling Commission lacks expertise.
Griffith said that the government believed a framework for financial services regulation would be more suitable to address crypto-trading risks.
Inconsistency with international standards
The G20 Financial Stability Board and International Organisation of Securities Commissions have both recommended that the retail trading of cryptos should be treated differently.
Griffith claimed that the approach of the committee could be in conflict with international standards.
He added that doing so could also lead to a conflict of interest between the Gambling Commission and financial regulators.
Failing to mitigate risk
He continued, “A gambling regulatory framework will not reduce risks associated with cryptocurrency trading.” He continued by saying that issues such as market manipulating, insufficient lending practices and failings in financial risks management will not be addressed.
He said that a financial services-based approach to cryptoregulation would help to reduce the risks for consumers.
The financial regulator is more likely to be able to oversee the market effectively.
Griffith said that the Gambling Commission had a proven track record in protecting consumers, and the public at large by making sure gambling was fair and safe.
The Gambling Commission does not have the expertise or the authority to supervise financial risks that are similar to the ones found in financial markets.
Recently UK Crypto Regulation efforts
He also described the recent government work on this topic. The secretary referred to the legislation that was tabled in November proposing a regulatory framework for financial promotion.
Griffith said: “I am looking forward to working with the Committee as we achieve our aim to establish the UK as a leader in cryptoasset investment and technology, supported by clear and robust regulations.”
Is crypto trading gambling?
Regulators have debated for many years whether new products, such as cryptocurrency or NFTs, should be regarded as gambling.
Andrew Rhodes, CEO of the Gambling Commission in May 2022 said that it is difficult to act as a regulator. The products contained some gambling elements, but they were not sufficient to make them purely gambling.
He explained that “what we usually see when it comes to novel products, is a part of the product crosses the border and not the whole thing.”
The company has taken previous action by issuing an alert to its customers in 2020 about the fantasy football game Sorare.
Sorare ran contests in which players could buy NFTs and create their fantasy teams. The pay-to-play nature of this game prompted warnings by the GB regulator, and caused concern in France.
It launched free play contests earlier this year in France, but it is still under the scrutiny of l’Autorite Nationale des Jeux.
It is not the only political group to demand that crypto trading be classified as gambling.
In January 2023 European Central Bank board member Fabio Panetta made a similar plea.