On 17 May 2023, the House of Commons Treasury Committee published a report on regulating crypto, in which it calls for consumer trading in unbacked cryptoassets to be regulated as gambling.

The key conclusions and recommendations set out in the report include:

  • The government and regulators must strive to keep pace with developments, including by ensuring the FCA’s authorisations gateway is open and effective so that potential productive innovation in financial services is not unduly constrained.
  • While the Committee supports financial innovation where there are potential benefits, the extent of the benefits cryptoasset technologies may bring to financial services remains unclear, and in the meantime the risks posed by cryptoassets to consumers and the environment are ‘real and present’.
  • The Committee recommends that the government takes a balanced approach to supporting the development of cryptoasset technologies. It should seek to avoid expending public resources on supporting cryptoasset activities without a clear, beneficial use case.
  • Regardless of the regulatory regime, their price volatility and absence of intrinsic value means that unbacked cryptoassets will inevitably pose significant risks to consumers. Furthermore, consumer speculation in unbacked cryptoassets more closely resembles gambling than it does a financial service. The Committee is concerned that regulating retail trading and investment activity in unbacked cryptoassets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not.
  • The Committee strongly recommends that the government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service.

The Committee plans to continue to follow developments in this space as both the industry and the government’s regulatory approach develop. It is also considering central bank digital currencies separately from the wider cryptoasset market, like the government and Bank of England. In each case its focus will be on ensuring that the right balance is achieved between not standing in the way of productive innovation on the one hand and mitigating risks on the other.