Written by Hazel J. Greene, Senior Analyst

The UK government has dismissed a recommendation by the House of Commons Treasury Committee to regulate crypto retail trading akin to gambling. Instead, the government intends to regulate digital assets within the framework of financial services, citing potential conflicts with European Union and global regulators if crypto investment is classified as gambling. This decision has sparked a debate on the appropriate regulatory approach for the rapidly growing crypto market.

The House of Commons Treasury Committee’s proposition to regulate crypto retail trading similar to gambling was met with opposition from the UK government. The committee’s assertion of aligning with the “same risk, same regulatory outcome” principle was firmly rejected. Andrew Griffith, Britain’s financial services minister, emphasized that categorizing digital assets as gambling would raise concerns with both European Union regulations and global counterparts.

Lawmakers expressed concerns that subjecting the crypto sector to financial services regulations might mislead consumers into believing that investing in digital assets is safer than it truly is, potentially resulting in significant financial losses. The government believes that such regulations would create confusion and overlapping responsibilities between financial regulators and the Gambling Commission.

Acknowledging the need for regulation, the UK government emphasized its active efforts in developing a comprehensive regulatory framework for the digital asset market. Proposed legislation was recently presented to parliament, and discussions surrounding it have already taken place. It is anticipated that this legislation may be enacted by late 2023, indicating a commitment to addressing the concerns associated with digital assets.

The government highlighted the collaborative approach it intends to adopt in establishing standards for the cryptocurrency industry. HM Treasury and the Financial Conduct Authority (FCA) envision working closely with crypto firms to ensure awareness of the regulatory requirements for approval. Future communication will provide clarity on the standards expected for crypto firms operating in the UK.

In dismissing the proposal to regulate crypto retail trading as gambling, the government cited risks associated with the collapse of FTX as evidence that a gambling-centric approach is inadequate. Andrew Griffith argued that this would also result in a divergence from the recommendations set forth by globally recognized regulatory bodies, such as the International Organization of Securities Commissions (IOSCO) and the G20 Financial Stability Board (FSB).

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.