A recent House of Commons Treasury Committee report has sparked heated debate by recommending that retail and investment activities in “unsupported crypto-assets, such as Bitcoin and Ether,” be regulated as gambling.
The government’s insistence on referring to crypto assets as ‘unsupported’ at a time of high inflation of a FIAT currency backed only by confidence in the Bank of England and the power of the military is frustratingly common throughout the report. For example, the phrase “unsupported cryptoassets” appears 26 times in the first 20 pages of the main body of the report. However, innovative blockchain solutions such as DeFi, ReFi, yield farming, zero-knowledge (ZK) and even staking are not mentioned once.
TL;DR
The report made the following recommendation on crypto regulation:
- Applying blockchain-based solutions to improve payment processing, particularly in “low-income countries and cross-border transactions.”
- Ensure timely regulatory frameworks and streamlined authorization processes.
- Support crypto technologies with “clear useful use cases, avoiding wasting public resources in niche innovations.
- Consider regulating the retail of “unsupported crypto assets as gambling” given their price volatility and resemblance to gambling rather than financial services.
- Apply AML/CTF “safeguards” that the Gambling Commission uses to encrypt assets.
Road to zero tax on crypto?
If passed, this regulatory change would fundamentally change the landscape of cryptocurrency activity in the UK and set a precedent for other jurisdictions around the world.
Members of the UK Parliament have admitted that the country needs to boost blockchain innovation. The inability to embrace the emerging technology has resulted in the UK losing ground to other more crypto-friendly countries such as Portugal and Dubai. Matt Hancock said the UK should have a “growth maximizing view” of crypto.
“HMRC has taken a revenue maximizing approach… by applying it in a sledgehammer way… what we need to do is have a growth maximizing vision where revenues will be much greater in the future.”
While the recent Treasury Committee report supported crypto much less than Hancock, it surprisingly opened up an option for pro-crypto MPs to use the gambling approach to abolish crypto taxes.
The UK has no tax on gambling – with income from gambling not declared on the personal tax return. Could treating gambling be a loophole for web3 companies to move to the UK and boost the country’s fintech industry?
Diving Deep: Treasury Committee Report
The Treasury Committee report examines the potential impact of crypto assets on the financial services landscape. It recognizes potential benefits, such as “improving efficiency and reducing costs of making payments, especially cross-border transactions and those in low-income countries.” However, it also underlines the “significant risks”, which include price volatility, high energy consumption and use in scams, fraud and money laundering.
“Unbacked cryptoassets have no intrinsic value and their price volatility exposes consumers to the potential for substantial gains or losses while serving no useful social purpose.”
The unflattering and highly debatable initial assessment of the crypto industry continues with the report highlighting the government’s proposals to regulate crypto assets within the financial services industry “to foster innovation, maximize potential benefits” and mitigate risk. to limit.
After highlighting the importance of not using public funds for activities without a clear and beneficial use case, the report draws parallels between crypto and gambling due to significant price volatility – and recommends a similar approach to regulation.
Crypto is gambling
The commission states that its recommendation to regulate retail and investment activities in “unsupported crypto assets” as gambling rather than a financial service is rooted in the principle of “same risk, same regulatory outcome.”
“We therefore strongly recommend that the government regulate retail and investment activities in unsupported crypto-assets as gambling rather than a financial service, in line with the stated principle of ‘same risk, same regulatory outcome’.”
However, the report highlighted criticism of this, arguing that it could also create a “halo effect, leading consumers to believe this activity is safer than it is or protected if it isn’t.” Charles Randell, former chairman of the FCA, even predicted the demand for “addiction services” for crypto investors;
“Speculative crypto is gambling, pure and simple. It should be regulated and taxed as such, with levies to support the debt counseling and addiction services for which it will fuel demand.”
Additionally, the “Key Issues” section of the report cites a 2022 Bank for International Settlements (BIS) survey showing that most new Bitcoin users are “young men under the age of 35.” The survey also highlighted the potential risks faced by this demographic – considered to be the “most risk-taking in the population”.
Therefore, the recommendation to treat crypto trading as gambling could arguably make it more attractive to those compelled by high-risk activities, calling into question the consumer protection argument.
Balance between innovation and consumer protection
The report included additional outside responses to the investigation — including The Financial Services Consumer Panel — raising concerns about the government’s focus on developing new crypto-asset technology at the expense of consumer protection. Furthermore, CryptoUK’s Ian Taylor argued that appropriate regulation would help reduce consumer risk, stating:
“We need regulation from certain centralized market participants. If we had some regulation, some of these recent events might not have happened, where we’ve seen some pretty bad business practices.
Taylor continued his criticism of the committee in statements made since the report was released.
In finding an equitable solution to crypto regulation, the challenge lies in striking the right balance between fostering innovation and protecting consumers. While the report may be overly critical of the crypto sector, it does reiterate the government’s approach – as outlined by Rishi Sunak:
“To make the UK a global hub for crypto asset technology, and the measures we outlined today will ensure that businesses in this country can invest, innovate and scale.”
Government lawmakers are trying to bring crypto assets within the framework of the Financial Services and Markets Act 2000 (FSMA), which regulates various financial services.
However, the report seeks to backtrack on new innovations and instead focus on mitigating “significant risks posed by cryptoassets to consumers and the environment.” [which] are real and present.”
While the report sparks an interesting debate about crypto taxation and regulation in the UK, the Treasury Committee has not changed its anti-crypto stance:
“Our predecessor committee published a report in 2018 calling for more regulation to protect consumers from an industry it described as a ‘wild west’. Nothing we have heard in our current investigation has changed that impression.”
The post Everything you need to know about UK cryptocurrency regulation when gambling appeared first on CryptoSlate.