According to a highly influential group of UK MPs, the world of Bitcoin and ‘crypto-assets’ are a “wild west”, leaving investors vulnerable to exploitation.
The UK Parliament’s Treasury select committee has published a report characterising the crypto sector as an unregulated market with problems that include “volatile prices, hacking vulnerabilities, minimal consumer protection, and anonymity aiding money laundering,” concluding that the “ambiguity of the UK Government and regulators’ position is clearly not sustainable”, and strongly recommending it be regulated as soon as possible.
Among the group’s key conclusions, is the observation that the UK Government must first decide whether it wants to encourage growth in the sector as a policy. Only when this policy is it decided, does it recommend applying regulation proportionate to its stance.
It notes that the UK is “well placed to become global centre for crypto-assets,” should its lawmakers seek to encourage that goal, but that current efforts at self-regulation are “clearly insufficient.”
To enforce that point further, the report adds that, until “Government and regulators decide whether the current Wild West situation is allowed to continue, or whether they are going to introduce regulation, consumers remain unprotected.”
The report markedly moves away from the use of the term ‘cryptocurrencies’. In a rather damning conclusion – and walking path that’s been well-trodden in the last year-or-so – it points out its belief that while currencies act as “a medium of exchange, store of value, or unit of account,” there are “no cryptocurrencies that perform these functions.”
Instead, the report uses the term crypto-assets to describe Bitcoin and the rest, concluding that, due to their extensive use as speculative investments, “well-functioning cryptocurrencies exist only as a theoretical concept.”
Also, breaking down a common narrative in the sector, the reports key findings section is quite dismissive of the potential blockchain technology could possibly play in future IT projects.
“Blockchain is currently slow, costly and energy-intensive,” the report finds, before noting that “there is potential for data storage uses.”
Commenting on the report, Peter Edgar, CEO of UK-based blockchain investment platform, Investx, said: “Regulation is the biggest question mark in the blockchain industry right now, and the sooner sensible regulation is brought in the better. Regulation will remove the bad actors in the industry and ensure investors are protected.”
Edgar, however, had quite a different take on the role of blockchain technology to that of the Select Comittee members:
“We see the opportunities that blockchain technology can bring to financial services,” he said. “It can open up new routes of funding for established businesses. In a time of uncertainty in the UK, we would welcome clarity from British regulators to make UK the global leader in blockchain technology.”
The report also broached the issue that ‘crypto-assets’ and the majority of ICOs operate outside of the Financial Conduct Authority’s (FCA) purview. This, it concluded, means investors are currently “afforded very little protection from the litany of risks,” and lack options for seeking redress or compensation when investments turn sour.
The FCA, it says, should also have greater powers to police ICO and crypto advertising in the UK, to combat “One-sided adverts” that “imply that the crypto-asset market will only go up, and that anyone can make a lot of money easily.”
It describes the FCA’s current consumer warnings as a “feeble corrective” to the crypto marketing push.
Commenting on the Report, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:
“Bitcoin and other crypto-assets exist in the Wild West industry of crypto-assets. This unregulated industry leaves investors facing numerous risks. Given the high price volatility, the hacking vulnerability of exchanges and the potential role in money laundering, the Treasury Committee strongly believes that regulation should be introduced.”
“At a minimum,” Morgan added, “regulation should address consumer protection and anti-money laundering. If the Government decides that crypto-asset growth should be encouraged, appropriate and proportionate regulation could see the UK become a global centre for this activity.”
For its part, CryptoUK, which represents some cryptocurrency companies with operations in Britain, said it welcomed the report.
“As an industry we have been calling for the introduction of proportionate regulation to improve standards and encourage growth,” said Iqbal Gandham, the chair of CryptoUK. “Self-regulation by the industry was always intended to be a starting point – this must now be matched by government action.”
Only a week or so ago, Gandham told the World Blockchain Forum in London that he believed there had been a shift in the attitude of MPs regarding cryptocurrencies and blockchain technology.
“This year is all about regulation,” Gandham said. “which I think will be a really positive movement.”
“There are now MPs having open conversations about raising questions in parliament about Blockchain, about Cryptos. So I think sentiment has changed; the Bank of England sentiment at the start of the year was ‘it’s negative, it’s was money laundering, it’s bad, it’s poisonous… and now the sentiment is ‘we need to have a look at this…”
However, Gandham said that the industry has a long way to go with regards to educating decision makers about the benefits of Blockchain technology.
“We speak a completely different language,” he observed.
“I think industry and government really needs to understand these things because Blockchain is going to help them solve some of their problems.”
Another report on potential regulation, which should go a long way to defining the current Conservative government’s attitude to crypto-assets going forward, is due from the Bank of England and FCA-led cryptocurrency ‘Task Force’ before the end of the year.