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Regulating Crypto Trading as Gambling: UK Lawmakers Weigh In

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According to the politicians, the high volatility and alleged absence of inherent worth in the majority of cryptocurrency assets pose significant risks to consumers.

In a recent report, a group of British lawmakers suggested that the trading of “unbacked cryptoassets” like Bitcoin (BTC) and Ether (ETH) should be classified as gambling rather than a financial service and subjected to regulatory measures. The report highlights the need for treating these assets as speculative activities with similarities to gambling rather than traditional financial transactions.

Currently, the United Kingdom is in the process of developing a regulatory framework for these currencies that combines existing financial asset laws with newly introduced rules specifically tailored for the industry.

This approach aims to address the unique characteristics and challenges posed by digital assets while leveraging the existing regulatory infrastructure in place for traditional financial assets.

Nonetheless, according to a report from the U.K. Treasury Committee released on May 17, it is strongly advised to regulate retail digital asset trading and investment activities as gambling. The committee supports the idea of applying the principle of “same risk, same regulatory outcome,” which implies that activities with similar risks should have comparable regulatory measures in place.

The report contended that the inherent risks to consumers are inevitable due to the price volatility and absence of intrinsic value associated with unbacked digital assets.

According to Harriett Baldwin, the Chair of the Treasury Committee, Bitcoin and Ether account for two-thirds of the overall market capitalization of digital assets. She further asserted that both cryptocurrencies are considered “unbacked” in nature, lacking underlying support or tangible assets.

In the United Kingdom, the regulation of all forms of gambling, including online and land-based activities, falls under the purview of the Gambling Commission, as mandated by the Gambling Act of 2005. The Gambling Commission oversees various types of gambling establishments, such as bingo halls, lotteries, betting shops, online betting companies, and casinos. Its primary objectives include preventing problem gambling and implementing measures to combat money laundering through Anti-Money Laundering safeguards.

Crypto’s Volatility

crypto’s volatility
Regulating Crypto Trading as Gambling: UK Lawmakers Weigh In 2

The lawmakers supporting their stance referenced statements made by Dr. Larisa Yarovaya, an associate professor at the University of Southampton. Dr. Yarovaya emphasized the need for stringent regulation of crypto exchanges, online trading platforms, and other businesses involved in crypto assets. She highlighted that speculation can potentially be addictive, warranting comparable levels of regulation as other addictive activities.

The committee acknowledged the potential advantages that certain crypto assets and their underlying technology can bring to financial services and markets, marking a minor victory for the cryptocurrency industry. These benefits include the potential to lower the expenses associated with cross-border payments and enhance financial inclusion.

The committee recommended the establishment of a robust regulatory framework in the United Kingdom that facilitates and supports these advancements in the industry while effectively addressing and minimizing the risks associated with crypto assets.

The committee comprises 11 members of Parliament from various parties, including the Labour Party, Conservative Party, and the Scottish National Party. Harriett Baldwin, a former economic secretary to the Treasury, is among the committee members.

The committee initiated an inquiry into the crypto industry in July 2022, with the objective of examining the role of crypto assets within the United Kingdom.

Research conducted by Her Majesty’s Revenue and Customs (HMRC), the country’s tax authority, in the previous year revealed that 10% of UK citizens currently hold or have held cryptocurrencies, while over 55% of them have never sold any.

In the 2022 crypto adoption index by Chainalysis, the United Kingdom was ranked 17th in terms of crypto adoption.

UK watchdogs tighten noose on crypto ads

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Over 50 companies that have marketed cryptocurrency services in the United Kingdom (UK) have received an enforcement notice from the Advertising Standards Authority (ASA), instructing them to assess their adverts to ensure they comply with new instructions.

The companies mentioned are the ones that appear to have pushed cryptocurrency ahead of a planned crackdown in the country on deceptive and irresponsible crypto advertisements, according to reports.

The UK Advertising Standards Authority Issues A Red Alert About Cryptocurrencies

The notice, according to the Advertising Standards Authority, is intended to act as a caution to firms to examine and tidy up their adverts over the following two months, after which more stringent measures to punish rule-breakers would be implemented.

Crypto advertisements, that have risen as digital assets along with gaining widespread appeal, have been targeted by regulators around the world. Earlier this year, governments and watchdogs in the UK, Singapore, and Spain pledged to stiffen regulations on crypto advertisements. These rigorous guidelines also limit such promotions to just rich investors, though the United Kingdom has yet to establish a deadline for enacting that reform into law.

Guidelines of UK’s advertisement enforcement notice

All promotions should clearly and prominently state that cryptoassets are unregulated in the United Kingdom, that any profits may be subject to Capital Gains Tax, and that the value of crypto investments can go down as well as up, according to the ASA’s enforcement notice, which was issued on Tuesday. Advertisements in newspapers and magazines, on television, in emails, on outdoor posters, in boosted social media postings, and through paid agreements with influencers are all inclusive of this.

The ASA said that all commercials airing between now and May 2 will be checked for compliance, with “targeted enforcement action” taken if problems remain after that date. Furthermore, repeat offenders will be reported to the Financial Conduct Authority as well as Trading Standards, which has the authority to prosecute, penalise, and eventually stop businesses from trading.

The ASA refused to name any of the companies that got the enforcement notice but alluded to recent ASA judgments against crypto ad companies in the United Kingdom. Coinbase Europe Ltd, Arsenal Football Club, eToro’s UK subsidiary, and Floki Ltd., which launched adverts in favour of the parody cryptocurrency Floki Inu, are among the companies involved.

Binance Clarifies: FCA UK notice has no direct impact on Binance.com services

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Binance has issued a clarification after the UK Financial Conduct Authority [FCA] warned the cryptocurrency exchange and prohibiting it from carrying out crypto-related activities. This was enough to stir the market which has been facing regulatory clampdowns in certain parts of the world.

While explaining that Binance Market Limited [BML] is a separate legal entity, the exchange, responded in a series of tweets confirming that it does not offer any products or services via the Binance.com website.

The Binance Group had previously announced the acquisition of BML back in May 2020. Till now, the platform has not yet rolled out its business in the UK nor has it used the FCA regulatory permissions. In short, BML is not operational yet.

Binance maintains that nothing has changed

The CZ-led crypto exchange also clarified that the latest notice by the regulatory watchdogs of the country essentially “has no direct impact on the services provided on Binance.com further adding that its relationship with the users of the region has not changed. Its tweet read,

“We take a collaborative approach in working with regulators and we take our compliance obligations very seriously. We are actively keeping abreast of changing policies, rules, and laws in this new space.”

The official press release had earlier stated that, due to the imposition of requirements by the regulatory entity, Binance Markets Limited [BML] is not currently allowed to engage in any regulated activities without the prior written consent of the FCA. However, the FCA has admitted that the restrictions were applicable to only the derivative products, and identified that spot trading of digital assets is outside its regulatory purview.

Furthermore, FCA’s notice does not prohibit the platform’s clients from using the platform, however, it should be noted that the UK authorities are under no obligation to protect them in the event of an eventuality.

The latest news comes in the backdrop of intensifying scrutiny against Binance among the regulatory entities especially in countries like Canada and Japan. Despite a slew of negative back-to-back news regarding the cryptocurrency exchange, Bitcoin and the altcoin market have not felt the FUD episodes.

Transferwise to Roll Out Investment Feature in the UK in Upcoming Months; Wishes to Create a More Diverse Ecosystem

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As time progresses, more and more changes have taken place in the financial world. With the addition of the cryptocurrency industry and the way it has grown over the last decade, several organizations have grown by leaps and bounds.

One such company has been Transferwise, which began life as a cross-border payment solution but did not diversify into providing investment services. The United Kingdom Financial Conduct Authority has been granted permission to deal with the investment wing. This will allow Transferwise to allow users to invest passively in third party funds.

Sources close to the company have revealed that the latest move was a bid for users to make a return on their investment. Transferwise CEO Kristo Kaarmann claimed that the main inspiration for the investment arm came back sometime when the company saw massive international trades. Kaarmann said that businesses had a lot of international payments coming from multiple regions, and it seemed to be a good thing to tap into.

Transferwise stated that they did not want to act as stockbrokers, but rather wanted to provide their users with a level playing field. Rivals such as Robinhood and Revolut have already ventured into the stockbroker field, but this has not dissuaded Trasnferwise from its aims. Sources indicate that Trasnferwise plans to launch its native investment feature in the next 12 months with an initial United Kingdom roll-out. Once the model is tested in the United Kingdom(UK), there are plans to expand it rapidly across the globe.

Speaking at a recent forum, Kaarmann said:

“We’ve been very humbled in some ways and proud that customers are funding our mission. They keep TransferWise running through the fees that they’re paying; they pay our salaries, they let us hire more people and grow the product. It’s not like if you put money into a savings account in a bank, money magically grows there. It’s still going to be invested in something.”

Trasnferwise already has a reliable customer base and anew investment feature will only do well to boost it. Officials of the company were confident that 2021 will see a massive demand surge in investment ideas and believed in staying ahead of the curve. The latest development is also set to increase the massive amount of capital deposited into the company, which currently clocked in at $2.5 billion.