The United Kingdom (UK) Government has rejected calls by the Treasury Committee to regulate cryptocurrencies in the same way as gambling in the UK. Financial Services Minister Andrew Griffith explained that doing so would be at odds with financial regulators worldwide and would not alleviate risk.
The Treasury Committee published the government’s response to its recommendations. These recommendations reflected a concern that regulating cryptocurrencies as a financial service would lead consumers to see them as safe when in fact, there is significant risk involved in cryptocurrency investment and trading.
The response clarifies the government’s disagreement with the Committee’s regulatory recommendations. MPs recognise the benefits cryptocurrency technology can bring regarding international transactions and the need to optimise benefits by keeping pace with global developments. As a result, the government has confirmed its intention to regulate cryptocurrencies as a financial service.
Why the Finance Ministry disagrees with the Treasury Select Committee
The government believes that using gambling regulation for cryptocurrencies would not prevent situations like the collapse of the FTX crypto exchange. In its response to the Treasury Committee, it also spoke of the need to be on the same page as global financial standard-setting organisations such as the International Organization of Securities Commissions (IOSCO) and the G20 Financial Stability Board (FSB).
For example, the EU has already agreed to the world’s first set of rules for trading in crypto assets. So, choosing not to regulate cryptocurrency trading as a financial service in the UK would confuse the situation. Going down the route of gambling regulation would mean the work of the Gambling Commission in the UK overlapping with the work of global financial regulators.
The role of the Gambling Commission mostly involves protecting gambling industry consumers in association with schemes such as GAMSTOP and enforcing regulations that do not exist for casino operators outside of the GAMSTOP scheme, so there is some connection with financial control and security. For some people, this type of regulation is restrictive. They believe that regulation should be about ensuring fairness and preventing crime rather than restricting personal preference regarding expenditure. After all, there are no consumer protections or law that regard limits on how much customers are allowed to spend when shopping for clothes or food online.
Also, the government does not see the risks of the gambling industry as being akin to cryptocurrency risks. So, it believes that the Gambling Commission working alongside global financial regulators would lead to a lack of clarity and consistency.
Therefore, the future of cryptocurrency regulation in the UK is set to follow a similar path to what has already begun to happen in the EU.
What the EU’s cryptocurrency rules say
In May 2023, the EU confirmed the agreement of the first set of rules in the world for trading crypto assets. The rules will come into force in 2024. They include:
- Firms that want to trade in or safeguard crypto assets, tokenised assets, and stablecoins in the EU must obtain a license.
- Transactions are easier to trace in order to combat money laundering and tax evasion.
- By January 2026, service providers must obtain sender and beneficiary names no matter what the size of a transaction is.
- Agreements on communication between countries regarding tax information, including advance tax rulings for the wealthiest people.
Cryptocurrency firms want more certainty from regulation and are encouraging countries to follow the EU’s example. The UK is set on following a similar approach to the EU but is doing so in phases, starting with adopting rules for regulating stablecoins. It will then move on from this “backed” cryptocurrency to the regulation of those that are not backed by underlying assets.
