© Provided by City AM The regulatory body identified “significant failures” in relation to key controls such as customer due diligence, risk assessments, and transaction and ongoing monitoring.

An influential group of lawmakers has argued that consumer cryptocurrencies should be treated like gambling in the government’s upcoming crypto regulations. 

In a new report on the crypto sector, MPs on the Treasury Select Committee concluded that retail trading in unbacked crypto “more closely resembles gambling than a financial service”.

The MPs noted that the vast majority of cryptoassets are unbacked, arguing they have “no intrinsic value and serve no useful purpose”. 

The report also suggested that many of those investing in cryptoassets treated it as a speculative gamble. According to a 2022 survey cited by the report, the most common reason given for holding crypto assets was that they were a “fun investment”. 

The committee concluded that “retail trading and investment activity” in unbacked cryptoassets be treated as “gambling rather than as a financial service, consistent with its stated principle of ‘same risk, same regulatory outcome’.”

Regulators in the crypto sector could provide the same role as gambling watchdogs, including advice on the prevention of problem gambling and the application of money laundering and counter-terrorist safeguards. 

On top of crypto’s similarity to gambling, MPs highlighted its environmental impact and its frequent use by criminals.

MPs were also concerned that regulating unbacked cryptoassets like a financial service would create a ‘halo’ effect, leading consumers to believe the asset is safer than it actually is. 

Despite fears over the consumer, the Treasury Committee accepted that the underlying technology may bring benefits to financial services. In particular, they highlighted cross-border transactions and payments in developing countries. 

The MPs called on the government to “keep pace with developments” so that productive innovations are not “unduly constrained”. 

In sum however, they suggested that the benefits remain “unclear” while the risks to consumers and the environment are “real and present”. 

Chair of the committee Harriett Baldwin said: “Effective regulation is clearly needed to protect consumers from harm, as well as to support productive innovation in the UK’s financial services industry.” 

“However, with no intrinsic value, huge price volatility and no discernible social good, consumer trading of cryptocurrencies like Bitcoin more closely resembles gambling than a financial service, and should be regulated as such. By betting on these unbacked ‘tokens’, consumers should be aware that all their money could be lost,” she continued. 

The report comes shortly after the closure of the government’s consultation into the crypto sector. The government hopes the regulations will turn the UK into a digital hub. 

Many firms and groups in the crypto ecosystem have praised the government’s approach to the sector. Regulations are expected to come into place next year.

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