Niall Hearty of Rahman Ravelli details the Treasury’s dismissal of the idea that trading in certain cryptoassets could be regulated as gambling.
The Treasury has stated that it will not be adopting proposals by an all-party parliamentary committee for consumer trading in unbacked crypto such as Bitcoin and Ether to be regulated as gambling.
Three months ago, the Treasury Committee made its proposal in a report. The cross-party committee of MPs stated in the report that cryptocurrencies such as Bitcoin have no intrinsic value, serve no useful social purpose and pose significant risks to consumers, given their price volatility and the possibility of suffering financial losses.
The committee argued that as retail trading in unbacked crypto more closely resembles gambling than a financial service, the government should regulate it accordingly. It warned that government plans to regulate crypto trading as a financial service risks creating a ‘halo’ effect, leading consumers to believe the activity is safe and protected, when it is not.
But in its response, the Treasury has said it “firmly disagrees” with the committee’s recommendations. It argues that such an approach would risk misalignment with international standards and potentially create unclear and overlapping mandates between financial regulators and the Gambling Commission
It stated: “Such an approach would run completely counter to globally-agreed recommendations from international organisations and standard-setting bodies, including the International Organization of Securities Commissions and the G20 Financial Stability Board.
“These recommendations are grounded in the principle of ‘same activity, same risk, same regulatory outcome’, meaning that any cryptoasset activity that performs a similar function, and poses similar risks, to those in the traditional financial system (for example, operating a trading platform or providing custody services) are subject to regulation that ensures equivalent outcomes.”
The Treasury added that a system of gambling regulation could also fail to mitigate many of the critical risks that were discussed in a recent government consultation on cryptoasset regulation, including those associated with market manipulation, inadequate prudential arrangements and deficiencies in core financial risk management practices.
It concluded: “”A financial services regulatory framework is more appropriate for addressing the risks of unbacked cryptoassets and creating the conditions for safe innovation. This can – and will – come with a set of robust measures to mitigate consumer risks mentioned in the Committee’s report, including the risks of ‘consumers getting misinformed'”.
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