The U.K. government has rejected a proposal made by the House of Commons Treasury Committee in May to regulate digital assets as gambling rather than financial services, stating that it “firmly disagrees with the Committee’s recommendation” and citing concerns 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, which is the government department in charge of economic and financial matters in the country.
On May 17, the committee published a report titled “Regulating Crypto,” which suggested that consumer speculation in unbacked digital assets, such as BTC and Ethereum, is an area of particular concern and that “the Government needs to take a different approach in order to better protect consumers from harm.” The different approach suggested was to regulate digital assets as gambling.
The government and Treasury Department took some time to consider this suggestion, but on July 19, they rejected the committee’s proposal.
“HM Treasury recognises many of the consumer risks described in the report, as well as the pressing need for robust and effective regulation,” said the Treasury’s response. “However, HM Treasury firmly disagrees with the Committee’s recommendation to regulate ‘retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service.'”
Such an approach would “run completely counter to globally agreed recommendations from international organizations and standard-setting bodies, including the International Organization of Securities Commissions (IOSCO) and the G20 Financial Stability Board (FSB),” according to the Treasury.
The IOSCO and FSB both place digital assets firmly within the realm of financial services.
The Treasury’s response also raised questions about the efficacy of gambling regulation and the Gambling Commission that oversees the sector to deal with digital assets.
“The Gambling Commission has a strong track record of safeguarding consumers and the wider public by ensuring gambling is safe and fair. However, overseeing financial risks, which are akin to those which exist within financial markets, is not within the mandate or field of expertise of the Gambling Commission,” the Treasury noted.
The response argued that the committee’s desire, voiced in May, for robust digital asset regulation was, in fact, “fully consistent with the Government’s approach,” pointing to the dedicated financial promotions regulatory regime for digital assets that are already in the works.
“Legislation was laid before Parliament and debated last month, and will be in force by late 2023,” the Treasury stated.
This is in reference to the U.K. Parliament last month passing the Financial Services and Markets Bill (FSMB) after it received approval from King Charles on June 29.
The bill aims to regain control over financial services rules post-Brexit and includes provisions that bring digital assets and stablecoins within the scope of financial services regulations. The passing of the FSMB bill extends the banking rules of the Financial Services and Markets Act 2000 (FSMA)—the primary legislative framework for financial services oversight in the U.K.—to stablecoins and digital assets.
This means digital assets will be officially recognized as a regulated financial activity in the United Kingdom.
Despite the two months of waiting for its response, the Treasury’s decision not to regulate digital assets as gambling seemed almost inevitable after the reaction to the controversial suggestion in May.
Soon after the committee’s recommendations were published, trade body CryptoUK released a statement saying it “strongly disagrees with the Treasury Select Committee’s conclusion, 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) for digital assets, made up of 15 members of Parliament and Lords, releasing a report backing the government and Treasury’s current approach—as outlined by a February consultation which set out plans to integrate digital assets and stablecoin into existing financial services regulation.
“The APPG supports the position of HM Treasury that cryptocurrency and digital assets are best regulated, in so far as is possible and appropriate, within existing and new financial services regulations, which has a track record in mitigating risks to consumers and investors,” the APPG said.
As of July 19, it appears this view has prevailed, and the U.K. government will continue with its plans to integrate digital assets into the FSMA.
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