The House of Commons Treasury Committee’s opposition to the government’s plans to regulate crypto like a financial service has generated an instant backlash from the industry – and lawmakers’ views, though non-binding, may represent an extra bump in the road to the U.K.’s crypto plans.
A Wednesday report from the panel of lawmakers, led by the Conservative Party’s Harriett Baldwin, warned that consumers could be lulled into a false sense of security if unbacked crypto such as bitcoin (BTC) and ether (ETH) were regulated like other investments – and that it should instead be regulated like gambling.
The country’s finance ministry, the Treasury, is adamant that it will press ahead with its plans to regulate crypto using existing financial legislation, as crypto’s risks are similar, a spokesperson from the government told CoinDesk.
That may prove crucial given that, in practice, it’s the government that generally proposes new laws in the U.K. Lawmaker skepticism hasn’t prevented other crypto rules from passing relatively smoothly, including new measures on financial promotions – but many in the crypto industry see the latest intervention as unhelpful.
Last year, Rishi Sunak – then finance minister, now prime minister – said he wanted to make the U.K. a crypto hub. The Treasury still says it wants to promote innovation, even if ministers have quietly backtracked on the flashier elements of the announcement, like plans to mint a non-fungible token.
A February Treasury consultation proposed some rules of the road that were broadly welcomed by the industry – but now lobbyists are more concerned.
“This latest Treasury Select Committee report goes against the grain,” Mark Foster, the Crypto Council for Innovation’s European Union (EU) policy lead, told CoinDesk. “It misunderstands and misrepresents digital assets. There are practical use cases around remittances, payments and pathways for greater financial inclusion.”
Adam Jackson, director of policy at Innovate Finance, said that the Treasury's approach guarantees quality and consistency with other jurisdictions – with the EU recently legislating a new set of crypto rules similar to those for other financial instruments.
“Financial services are rigorously regulated in the U.K., and the application and adaptation of these existing rules to crypto assets will therefore provide for a high level of protection,” including protection of vulnerable consumers, Jackson said.
Ian Taylor, board advisor at lobby group CryptoUK, appeared to agree, saying consumer risk can be mitigated by education and regulations. “Equating cryptocurrency with gambling is both unhelpful and untrue,” he said.
The committee’s plans veer from the finance-based approach the U.K. has taken so far. The country’s crypto anti-money laundering regime is already run by the Financial Conduct Authority, which is also responsible for regulating traditional services like consumer credit and payments. Extra proposed powers to regulate crypto are contained in its Financial Services and Markets Bill, which appears to be nearing agreement, having already passed through the House of Commons, the parliament’s lower chamber.
The committee is a scrutiny body, and its views aren’t binding on the Treasury – but they could nonetheless throw a spanner in the works as a result of parliamentary procedures, lawyer Diego Ballon Ossio told CoinDesk in an email.
After the FSMB is passed, the detailed law that brings crypto within the regulatory fold will need to be actively agreed by a vote in both chambers of the U.K. Parliament, said Ballon Ossio, who is a partner in Clifford Chance’s London practice.
While in theory, Sunak’s party has a majority in the Commons, he has clearly failed to convince party members such as Baldwin. However, lawmakers usually can’t amend those secondary regulations like the recent crypto promotions amendment, and in practice rarely reject them, according to think tank the Institute for Government.
But the committee’s opposition, while not fatal, may represent one more political challenge to the government’s plans.
CORRECTION (May 18, 13:29 UTC): Corrects Ballon Ossio's surname.
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