The United Kingdom government has declined a suggestion from a parliamentary committee to regulate cryptocurrency trading as a form of gambling. The House of Commons Treasury Committee’s report on the regulation of cryptoassets trading had proposed treating such trading as gambling due to their high volatility and lack of intrinsic value, which they argued served no useful social purpose. The committee believed these characteristics closely resembled gambling rather than a financial service.
Government’s Response and Reasoning
However, Andrew Griffith, the economic secretary to the treasury, rejected this call. While he acknowledged many of the consumer risks highlighted in the report, he disagreed with the committee’s conclusion for several reasons. These included potential misalignment with international standards, blurring the lines between the roles of financial and gambling regulators, failure to address the unique risks of cryptocurrency trading, and a lack of expertise within the Gambling Commission.
Griffith argued that a financial services regulatory framework would be more appropriate for handling the risks of crypto trading. He pointed out that treating retail crypto trading as gambling would not align with the recommendations of international organizations like the International Organisation of Securities Commissions and the G20 Financial Stability Board. This could result in a deviation from international standards and create overlapping mandates between financial regulators and the Gambling Commission.
A Financial Services Approach to Crypto Regulation
Griffith further explained that a gambling regulatory framework would fail to mitigate the risks of cryptocurrency trading, such as market manipulation, inadequate loaning practices, and failures in financial risk management. A financial services approach, on the other hand, could ensure steps to reduce the risk to consumers.
He noted that while the Gambling Commission has a commendable record of ensuring safe and fair gambling, overseeing financial risks, which are akin to those within financial markets, is not within its mandate or expertise.
Ongoing Debate Around Crypto Trading and Gambling
Griffith also highlighted the government’s recent efforts in crypto regulation, including the proposal of a dedicated financial promotions regulatory regime. He expressed eagerness to continue working with the committee towards making the UK a leading jurisdiction for cryptoasset technology and investment, underpinned by clear and robust regulation.
The classification of emerging products such as cryptocurrency and NFTs as gambling has been a topic of debate among regulators for years. In May 2022, Gambling Commission CEO Andrew Rhodes acknowledged the challenge for regulators as these products often exhibit gambling characteristics but not to the extent of being purely gambling.
The UK government committee is not the first political entity to suggest treating crypto trading as gambling. Fabio Panetta, a board member of the European Central Bank, made a similar plea in January 2023.