On 19 September 2018 the UK House of Commons Treasury Committee (the Committee) published its report on the possible regulation of crypto-assets (the Report). Commenting on the Report, Committee chair Rt Hon. Nicky Morgan MP argued that the crypto-assets industry is highly unregulated, which results in numerous risks for investors. Hence, with this Report the Committee hopes to push for regulating this market.
The key points of the Report are as follows:
- throughout the Report, emphasis is laid on the risks concerning consumer protection, and especially inexperienced retail investors. Hacking of crypto-assets exchanges and losing passwords to accounts are mentioned as specific risks;
- in the same context, the Report mentions the lack of safeguards for consumers, such as a collective deposit insurance scheme or an obligatory code of conduct. The consumer warning by the FCA on ICOs is evidence that they present significant risks to investors;
- crypto-assets can facilitate money laundering and terrorism. The absence of regulation for crypto-asset exchanges is very problematic in that regard. The Committee wants a bigger role for the FCA concerning the fight against money laundering. The FCA also needs more power to control how crypto-exchanges and ICO issuers market their services and to outline an approach to fight market manipulation within the crypto-asset market;
- appropriate and proportionate regulation will promote the UK as a global centre of crypto-asset activity;
- the proposed method for regulating crypto-assets is by extending the Regulated Activities Order. It would provide the FCA with the necessary legal powers. The Committee recommends that the Government considers the scope, but should at a minimum include the issuance of ICOs and the provision of crypto-exchange services.
The Report on crypto-assets is part of a larger inquiry on the role of digital currencies in the UK, including the opportunities and risks that they may bring to consumers, businesses and the UK Government. Part of the inquiry is an examination of the potential impact of blockchain on financial institutions and financial infrastructure, as well as the regulatory response to digital currencies from the Government, the FCA and the Bank of England.