In a recent report, a panel of UK lawmakers has recommended that the trading of “unbacked assets” like Bitcoin and Ethereum should be regulated as gambling rather than a financial service. The United Kingdom is currently developing a regulatory framework for cryptocurrencies, aiming to blend existing financial asset laws with new crypto-specific rules.
UK lawmakers debate new proposal
The report, released by the U.K. Treasury Committee on May 17, strongly advocated for regulating retail crypto trading and investment activities as gambling, following the principle of “same risk, same regulatory outcome.” The UK lawmakers committee expressed concerns about the price volatility and lack of intrinsic value in unbacked crypto assets, which they believe inevitably pose significant risks to consumers.
Harriett Baldwin, Chair of the Treasury Committee, emphasized that Bitcoin and Ether, which together account for two-thirds of the total market capitalization of assets, are considered unbacked. She voiced worries that regulating retail trading and investment in unbacked crypto assets as financial services might create a false perception of safety or protection among consumers.
In the United Kingdom, all forms of gambling, whether online or land-based, are regulated by the Gambling Commission under the Gambling Act 2005. The commission oversees various gambling activities such as bingo halls, lotteries, betting shops, online betting companies, and casinos, to prevent problem gambling and implement Anti-Money Laundering safeguards.
The UK lawmakers cited Dr. Larisa Yarovaya, an associate professor from the University of Southampton, who argued that crypto exchanges, online trading platforms, and other crypto-asset businesses should be regulated with the same level of stringency as gambling due to the addictive nature of crypto speculation.
The committee recognizes the benefits of regulating the crypto sector
Despite the recommendation to regulate unbacked crypto as gambling, the committee also acknowledged the potential benefits that certain crypto assets and their underlying technology can bring to financial services and markets.
This includes reducing the cost of cross-border payments and improving financial inclusion. The report emphasized the need for an effective regulatory framework in the UK to support these developments while mitigating associated risks.
The UK lawmakers committee, which consists of 11 members of Parliament from the Labor and Conservative parties, as well as the Scottish National Party, launched its inquiry into the crypto industry in July 2022 to explore the role of assets in the UK.
Recent research conducted by the country’s tax authority, His Majesty’s Revenue and Customs (HMRC), revealed that 10% of UK citizens hold or have held crypto, with more than 55% having never sold any. The United Kingdom ranked 17th in Chainalysis’ 2022 crypto adoption index.
The report concluded by welcoming the government’s proposal to regulate assets used in financial services, highlighting the need for a well-designed regulatory framework that supports innovation while addressing potential risks associated with crypto assets.
