The report had concluded that consumer trading in unbacked cryptocurrencies more closely resembles gambling than a financial service and should be regulated as such. It outlined concerns over the ‘halo’ effect which might result from financial services regulation of crypto trading, where association with a financial regulator would lead consumers to believing the activity is safe, where it might not be.
In its response, the Government has disagreed with the Committee’s recommendation on gambling, confirming its intention to regulate retail trading in unbacked cryptoassets as a financial service.
The Committee warned that it is ‘not the Government’s role to promote particular technological innovations for their own sake’. In response to this section of the report, the Government reaffirmed its role in establishing a clear framework for experimentation and competition, and in removing barriers which might prevent benefits from being realised.
The Government said that it had confidence in the set of tools available for FCA to mitigate consumer risks and ensure individual investors are better informed. It said a system of gambling regulation in isolation would be unlikely to address the risk factors associated with the sector. In particular, the Government said that such a system would not be equipped to deal with insider dealing, market manipulation, predatory short selling and other behaviours that might be seen in crypto asset as well as TradFi markets.