On 20 July 2023, the House of Commons’ Treasury Committee published the government’s response to its report on Regulating Crypto. In the report, which was published in May 2023, the cross-party Committee of MPs called for consumer trading in unbacked crypto to be regulated as gambling.

The Committee had outlined concerns that the government’s proposals to regulate consumer crypto trading as a financial service would create a ‘halo’ effect, leading consumers to believe it is a safe and protected activity when it is not.

In its response, the government disagrees with the Committee’s recommendation and reaffirms its intention to regulate retail trading in unbacked cryptoassets as a financial service.

It notes that regulating retail trading and investment activity in unbacked cryptoassets as gambling would ‘run completely counter’ to globally agreed recommendations from international organisations and standard-setting bodies, including the International Organization of Securities Commissions (IOSCO) 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 response also notes that a system of gambling regulation could fail to appropriately mitigate many of the critical risks that were discussed in HM Treasury’s recent consultation on cryptoasset regulation, including those associated with market manipulation, inadequate prudential arrangements, and deficiencies in core financial risk management practices.

The appendix to the response letter reflects on the Committee’s suggestions in further detail.