Crypto, or cryptocurrency, is a digital form of money that is powered by blockchain technology and cryptography. Crypto can be used for various purposes, such as payments, investments, trading, and speculation. Gambling, on the other hand, is a form of entertainment that involves wagering money or something of value on an uncertain outcome, such as a game of chance or a sporting event.
Some lawmakers in the UK wanted to regulate crypto as gambling rather than as a financial service, arguing that this would offer more protection and transparency to consumers who engage in crypto-related activities. However, the government rejected this proposal and decided to follow the global standards for regulating crypto as a financial service.
Why Regulate Crypto as Gambling?
The parliament’s Treasury Committee, which is responsible for examining the expenditure, administration and policy of the Treasury and its associated public bodies, had recommended in 2022 that consumer trading and investment activity in unbacked cryptoassets should be treated as gambling rather than as a financial service .
The committee argued that unbacked cryptoassets, such as Bitcoin and Ethereum, have no intrinsic value and are subject to high volatility and manipulation. Therefore, they do not meet the criteria for being classified as financial instruments or securities under the existing regulatory framework .
The committee also claimed that regulating crypto as gambling would provide more consumer protection and transparency, as it would require crypto businesses to obtain licenses from the Gambling Commission, adhere to anti-money laundering and social responsibility rules, and disclose information about the risks and returns of their products and services .
Why Regulate Crypto as a Financial Service?
The government disagreed with the Treasury Committee’s approach and decided to follow the advice of the Financial Stability Board (FSB), which is an international body that monitors and makes recommendations about the global financial system. The FSB had suggested in 2021 that crypto should be regulated in the same way as traditional assets such as stocks and bonds .
The government argued that regulating crypto as a financial service would align with the international standards and best practices for ensuring financial stability, market integrity, and investor protection. The government also stated that regulating crypto as a financial service would support innovation and competition in the UK’s fintech sector, which is one of the leading hubs for crypto-related businesses in the world.
The government announced that it would implement a new regulatory framework for cryptoassets based on the FSB’s recommendations by 2023. The new framework would classify cryptoassets into three categories: e-money tokens, security tokens, and utility tokens. Each category would have different rules and requirements depending on their characteristics and functions.
What Does This Mean for the UK Crypto Industry and Consumers?
The government’s decision to reject the call to regulate crypto as gambling means that the UK crypto industry and consumers will have to comply with the new regulatory framework for cryptoassets that will be introduced by 2023. The new framework will aim to protect consumers from harm, support innovation, and align with international standards.
The government said that it would consult with stakeholders and monitor the market developments before finalizing the details of the new framework. The government also said that it would review the existing legislation and guidance on crypto taxation, consumer rights, data protection, and competition law to ensure consistency and clarity.