Select committee: Treasury Committee

Fifteenth Report - Regulating Crypto

HC 615 Published 17 May 2023

Treasury Committee The crypto-asset industry Report on parliament.uk ↗

At a glance3 recommendations and 2 conclusions · Government response published 20 July 2023 (deadline 17 July 2023)

The government's response

Summary written by Accountability Index from the government's response. It is not the government's own words.

The government "firmly disagrees" with the Committee's recommendation to regulate retail trading in unbacked cryptoassets as gambling, while agreeing on the need for robust regulation and a balanced approach to innovation.

It says a financial services framework is "more appropriate" for the risks of unbacked cryptoassets, and gives as reasons the risk of misalignment with international standards, "unclear and overlapping mandates" with the Gambling Commission, and that gambling regulation would be "unlikely to address" risks identified in the FTX failure.
It "strongly agrees" with the need for a "balanced and technology-neutral approach" to supporting innovation, including cryptoasset technologies.
On consumer protection, it says legislation on cryptoasset financial promotions "will be in force by late 2023", and points to its consultation proposals, including an issuance disclosure regime.
It plans Financial Market Infrastructure sandboxes, with the first to be implemented "this year" and run by the FCA and Bank of England. On the Royal Mint NFT, it says the Royal Mint is not proceeding "at this time" but "will keep this proposal under review".

Read the government's response ↗ Report an error

What the committee recommended 5

2
Ensure FCA's cryptoasset authorisations gateway is open and effective for innovation. Recommendation · paragraph 31
3
Unclear future benefits of cryptoassets, but real risks to consumers and environment. Conclusion · paragraph 36
4
Adopt balanced approach to cryptoasset development, avoiding public funding without clear use case. Recommendation · paragraph 37
5
Unbacked cryptoassets pose significant consumer risks, resembling gambling more than financial services. Conclusion · paragraph 51
6
Regulate retail trading of unbacked cryptoassets as gambling, not a financial service. Recommendation · paragraph 52

Sources

Fifteenth Report - Regulating Crypto ↗The committee's report, HC 615, parliament.uk
Seventh Special Report - Regulating Crypto: Government Response to the Committee’s Fifteenth Report ↗The government's response, 20 July 2023, parliament.uk

Recommendations and conclusions 5

2
Ensure FCA's cryptoasset authorisations gateway is open and effective for innovation. Recommendation · paragraph 31 · addressed to HM Treasury Recommendation (the committee's words)
It has been more than four years since our predecessor Committee’s Report called for greater regulation of the cryptoasset industry, and the FCA faces challenges in implementing existing and proposed crypto regulations. It is important that the Government and regulators strive to keep pace with developments, including by ensuring that the Financial Conduct Authority’s authorisations gateway is open and effective, so that potential productive innovation in financial services is not unduly constrained.
3
Unclear future benefits of cryptoassets, but real risks to consumers and environment. Conclusion · paragraph 36 · addressed to HM Treasury Conclusion (the committee's words)
While we support financial innovation where there are potential benefits, the extent of the benefits cryptoasset technologies may bring to financial services in the future—and the areas in which the technologies may have the most impact— remains unclear. In the meantime, the risks posed by cryptoassets to consumers and the environment are real and present.
4
Adopt balanced approach to cryptoasset development, avoiding public funding without clear use case. Recommendation · paragraph 37 · addressed to HM Treasury Recommendation (the committee's words)
We recommend that the Government takes a balanced approach to supporting the development of cryptoasset technologies. It should seek to avoid expending public resources on supporting cryptoasset activities without a clear, beneficial use case, as appears to have been the case with the Royal Mint NFT. It is not the Government’s role to promote particular technological innovations for their own sake.
5
Unbacked cryptoassets pose significant consumer risks, resembling gambling more than financial services. Conclusion · paragraph 51 · addressed to HM Treasury Conclusion (the committee's words)
Regardless of the regulatory regime, their price volatility and absence of intrinsic value means that unbacked cryptoassets will inevitably pose significant risks to consumers. Furthermore, consumer speculation in unbacked cryptoassets more closely resembles gambling than it does a financial service. We are concerned that regulating retail trading and investment activity in unbacked cryptoassets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not.
6
Regulate retail trading of unbacked cryptoassets as gambling, not a financial service. Recommendation · paragraph 52 · addressed to HM Treasury Recommendation (the committee's words)
We strongly recommend that the Government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service, consistent with its stated principle of ‘same risk, same regulatory outcome’.