A panel of lawmakers in the United Kingdom has recommended regulating the trading of unbacked cryptoassets, such as Bitcoin and Ether, as gambling rather than a financial service. The lawmakers stated that the lack of intrinsic value and the price volatility of these assets will inevitably pose significant risks to consumers.
Regulating as gambling
The UK Treasury Committee has “strongly recommended” that retail crypto trading and investment activity be regulated as gambling, consistent with the principle of “same risk, same regulatory outcome.” The committee argued that regulating retail trading and investment activity in unbacked cryptoassets as a financial service would create a “halo” effect that leads consumers to believe that this activity is safer than it is or protected when it is not.
Despite the recommendation to regulate unbacked cryptoassets as gambling, the committee also recognized the potential for some crypto assets and their underlying technology to bring benefits to financial services and markets. For instance, reducing the cost of cross-border payments and improving financial inclusion. The committee said there should be an effective regulatory framework to support these developments in the UK while mitigating some of the risks associated with crypto assets.
The UK is currently working on a crypto regulatory framework that would mix existing financial asset laws with new crypto-specific rules. The committee welcomed the government’s proposals for how it plans to regulate cryptoassets used in financial services.
The committee launched its inquiry into the crypto industry in July 2022 to explore the role of cryptoassets in the UK. The lawmakers referred to written statements from an associate professor from the University of Southhampton, who said crypto exchanges, online trading platforms, and other crypto-asset businesses should be regulated with the same stringency as gambling because crypto speculation “can be addictive.”