The UK’s House of Commons Committee’s proposal of classifying unbacked crypto assets as gambling has been turned down by the UK goverment. 

The Committee laid out the government’s response to its ‘Regulating Crypto’ white paper filed in May in a recent statement.

According to the response, the government “recognises many of the consumer risks described in the report, as well as the pressing need for robust and effective regulation”.

However, the government “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’”.

The response was signed off by Andrew Griffith MP, who cited international regulatory standards as the reason for the government’s decision. He wrote: “The Committee’s proposed approach would therefore risk creating misalignment with international standards and approaches from other major jurisdictions including the EU, and potentially create unclear and overlapping mandates between financial regulators and the Gambling Commission.”

Regulating crypto as gambling would run counter to the globally agreed principle of “same activity, same risk, same economic outcome”, wrote Griffith, “meaning that any cryptoasset activity that performs a similar function, and poses similar risks, to those in the traditional financial system (for example, operating a trading platform or providing custody services) are subject to regulation that ensures equivalent outcomes.

The response also warned that bringing cryptoassets under gambling regulation could fail to appropriately mitigate any risks associated with market manipulation, inadequate prudential arrangements, and deficiencies in core financial risk management practices.

This makes a financial services regulatory framework more appropriate for addressing risks associated with trading cryptocurrencies.

The government’s response to the Treasury Committee’s white paper also said it sees the potential benefits of certain cryptoassets and their underlying technologies in financial services, particularly for cross-border payments and underdeveloped financial sectors.

The issue of how to regulate cryptocurrencies like bitcoin and ether has been a major point of contention in recent years.

The European Union has agreed on a widespread bespoke regulatory framework called the ‘Markets in Crypto-assets Act’, while lawmakers in the UK are focusing on retrofitting existing financial laws.

By William Farrington