Crypto trading will not face gambling-style rules City minister says

Calls to regulate cryptocurrency trading like gambling rather than a financial service have been rejected by the Government.

The Treasury “firmly disagrees” with calls from a powerful parliamentary committee to treat it as a form of gambling rather than giving financial watchdogs oversight of it.

“[Treating crypto trading as a form of gambling] would run completely counter to globally agreed recommendations from international organisations and standard-setting bodies, including the International Organisation of Securities Commissions and the G20 Financial Stability Board,” said Andrew Griffith, the financial services minister.

A gambling approach could fail to prevent risks such as the commingling of customer assets – of which the collapsed crypto exchange FTX is accused – as well as inadequately policing problems such as market manipulation and financial risk management practices, the minister added.

HM Revenue & Customs says one in 10 UK adults hold or have held cryptoassets including bitcoin.

The Government is keen for the UK become a global hub for crypto and its related blockchain technology, and is already working on rules for the sector.

The Treasury Select Committee questioned the Government’s plans saying in a report earlier this year that “unbacked” cryptocurrencies should be regulated as is gambling, given the significant risks posed to consumers.

The MPs said products such as bitcoin “have no intrinsic value and serve no useful social purpose” while consuming large amounts of energy and being used by criminals.

Related Article

Unbacked cryptoassets – often called cryptocurrencies – are not supported by any underlying asset and pose significant financial risks to consumers because of their price volatility and risk of big losses.

MPs feared that regulating it as a normal financial service like getting a mortgage, buying shares or a pension annuity, risked the danger of creating a “halo” effect, leading consumers to believe it is safe and protected.

“The committee’s proposed approach would risk creating misalignment with international standards and approaches from other major jurisdictions, including the EU, and potentially create unclear and overlapping mandates between financial regulators and the Gambling Commission,” Mr Griffith said.

“HM Treasury and the Financial Conduct Authority will work with the industry to ensure crypto firms are made fully aware of the standards required for approval,” he said.

The Government did agree with MPs that it needs to study the new technologies cryptoassets are created and traded with as they might have wider benefits for consumers and financial services, particularly for cross-border deals and transfers.

The Government and regulators plan to set up so-called Financial Market Infrastructure sandboxes for companies to experiment with blockchain technology, in an effort to make the market more “efficient, resilient and transparent”.

The EU recently approved the world’s first set of rules for trading cryptoassets, which are expected to come into force next year. However, Nasdaq, the US tech-focused stock exchange, has stopped its plans to set up a cryptocurrency custody service, citing regulatory uncertainty. The tech-focused US exchange operator has been among the leaders trying to help make it suitable for financial clients.