The Treasury has slapped down a suggestion from MPs that crypto should be regulated like gambling today, describing it as running “completely counter” to standards set by international watchdogs.
The influential Treasury Select Committee made headlines earlier this year when it wrote to the City minister Andrew Griffith claiming crypto’s volatile value meant it should be treated as a speculative bet rather than an asset.
However, Griffith, who has been at the heart of the government’s charm offensive on the crypto sector, wrote back to the chair of the Treasury Select Committee Harriett Baldwin today waving away the demands.
“[The] 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,’” Griffith wrote.
“Such an approach would run completely counter to globally agreed recommendations from international organisations and standard-setting bodies, including the International Organization of Securities Commissions and the G20 Financial Stability Board.”
Both bodies have issued policy guidance to rulemakers saying that the assets pose similar risks to the traditional financial system and therefore should be regulated as such.
Regulators globally have been scrambling to draw up rules after crypto exchange FTX imploded at the end of last year. Customers of the exchange were left millions of pounds out of pocket after allegedly fraudulent management and misuse of funds by founder Sam Bankman-Fried triggered its downfall.
Writing to Baldwin today, Griffith said the failure of FTX had “informed the UK’s proposed approach towards protecting UK consumers” and the initial post mortem of the collapse had pointed to the commingling of customer and firm assets as among the key causes of the collapse.
“A system of gambling regulation, in isolation, would be unlikely to address these risk factors,” Griffith added.
“It would also not be equipped to deal with insider dealing, market manipulation, predatory short selling and many other behaviours which can manifest themselves in both cryptoasset markets as well as traditional financial services markets.”
Lawmakers in the UK are set to begin drawing up tailored rules for the sector later this year and have been on a major charm offensive to the sector.
Then-chancellor Rishi Sunak said last year he wanted to make the UK a global hub for crypto firms. Sunak personally cheered the announcement in June that crypto investor a16z would set up its first non-US office in London.