The UK government has rejected a proposal made in May by the House of Commons Treasury Committee to regulate digital assets as gambling rather than financial services, saying it “completely disagrees with the committee’s recommendation” and expresses concern that such an approach would run counter to international trends.
The House of Commons Treasury Committee is responsible for scrutinizing the policies and actions of the Treasury, the government department responsible for economic and financial affairs in the country.
On May 17, the commission released a report titled “Regulating Crypto,” suggesting that consumer speculation in unsupported digital assets, such as BTC and Ethereum, is a matter of particular concern and that “the government needs to take a different approach to better protect consumers from harm.” The other proposed approach was to regulate digital assets as gambling.
The government and the Ministry of Finance took some time to consider this suggestion, but on July 19 they rejected the committee’s proposal.
“HM Treasury recognizes many of the consumer risks described in the report, as well as the urgent need for robust and effective regulation,” the Treasury Department’s response said. “However, HM Treasury strongly disagrees with the committee’s recommendation to ‘regulate retail and investment activities in unsupported crypto-assets as gambling rather than as a financial service’.”
Such an approach would “completely contradict the globally agreed recommendations of international organizations and standard-setting bodies, including the International Organization of Securities Commissions (IOSCO) and the G20 Financial Stability Board (FSB),” the Treasury Department said.
The IOSCO and FSB both place digital assets firmly in the realm of financial services.
The Treasury’s response also raised questions about the effectiveness of gambling regulation and the Gaming Commission overseeing the industry to handle digital assets.
“The Gambling Commission has a strong track record of protecting consumers and the general public by ensuring that gambling is safe and fair. However, oversight of financial risks, which are similar to those that exist in the financial markets, is not within the mandate or area of expertise of the Gambling Commission,” the Treasury noted.
The reply argued that the committee’s desire for robust regulation of digital assets, expressed in May, was in fact “fully consistent with the government’s approach”, pointing to the specific regulatory regime for financial promotions for digital assets already in the works.
“Legislation was introduced and discussed in parliament last month and will come into effect at the end of 2023,” the Treasury said.
This refers to the UK Parliament last month passing the Financial Services and Markets Bill (FSMB) after it was approved by King Charles on June 29.
The bill aims to regain control of financial services rules post-Brexit and includes provisions that bring digital assets and stablecoins within the scope of financial services regulation. The passing of the FSMB Act extends the banking rules of the Financial Services and Markets Act 2000 (FSMA) – the UK’s primary legal framework for supervision of financial services – to stablecoins and digital assets.
This means that digital assets are officially recognized as a regulated financial activity in the UK.
Despite the two-month wait for its response, the Treasury’s decision not to regulate digital assets as gambling seemed almost inevitable after the response to the controversial suggestion in May.
Shortly after the committee’s recommendations were published, trading organization CryptoUK released a statement saying it “strongly disagrees with the conclusion of the Treasury Select Committee, and we are both concerned and disappointed by these claims which are unhelpful, false, fundamentally flawed and unsubstantiated.”
This was followed in early June by an All Party Parliamentary Group (APPG) on digital assets, comprising 15 members of Parliament and the Lords, which issued a report supporting the current approach of the Government and the Treasury, as outlined by a consultation in February outlining plans to integrate digital assets and stablecoin into existing financial services regulations.
“The APPG supports HM Treasury’s view that cryptocurrency and digital assets are best regulated, to the extent possible and appropriate, within existing and emerging financial services regulations, which have a track record of mitigating risk for consumers and investors,” the APPG said.
As of July 19, this view appears to have prevailed and the UK government will proceed with its plans to integrate digital assets into the FSMA.
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