UK lawmakers call for regulation of “Wild West” crypto industry

As blockchain-powered cryptocurrencies continue to gain phenomenal traction in a diverse range of consumer markets across the globe, lawmakers in key jurisdictions have become increasingly concerned about the inherent lack of regulatory oversight surrounding these alternative currencies.

Chinese authorities have unleashed a flurry of regulatory measures and bans over the course of the past 12 months to clampdown on crypto trading. Meanwhile, the Korea Financial Intelligence Unit, the Monetary Authority of Singapore (MAS) and the Reserve Bank of India have all expressed heightened wariness in recent months. In March, one municipal government in the US state of New York went so far as to enact the country’s first-ever ban on cryptocurrency mining.

Last week, UK lawmakers finally joined that increasingly loud chorus demanding regulation after the Treasury Select Committee published a damning report calling for the government to step in and end what it called “the Wild West industry of crypto-assets”.

According to Conservative MP Nicky Morgan, chair of the committee, because cryptos and Initial Coin Offerings (ICOs) do not currently fall under the remit of the UK’s Financial Conduct Authority (FCA), British consumers and crypto investors are afforded absolutely no protection against “the litany of risks” associated with investment. Risks cited include price volatility, fraud and admittedly well-publicised instances of hacking vulnerability across various crypto exchanges.

The report went on to lament that the advertisements of companies issuing ICOs and offering crypto trading services are not formally regulated by the FCA – and so as a result, the only real tool British regulators have at their disposal to combat ambiguous crypto advertisements and protect uninformed investors is to offer consumer warnings the Treasury Select Committee claims are inadequate.

“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,” Morgan said following the release of the report.

“It’s unsustainable for the Government and regulators to bumble along issuing feeble warnings to potential investors, yet refrain from acting.”

Despite the fears of MPs, cryptocurrency uptake has been steady across the UK. Britain has more Bitcoin ATMs than any other country on the planet after the US and Canada. What’s more, the committee’s findings did concede the presence of multiple self-regulating bodies currently operating in the cryptocurrency space.

Yet MPs argued this voluntary approach has thus far failed to generate protections for investors such as consumer redress and compensation.

Fraudulent crypto activity has certainly been on the rise in the UK. Between the start of June and the end of July 2018, the country’s National Fraud and Cyber Crime Reporting Centre said it received 203 reports of fraud involving cryptos amounting to losses of more than £2m.

Elsewhere, the report pointed out the EU’s Fifth AML Directive had taken decent steps to combat money laundering across the industry. Yet because the UK Government is not expected to enshrine those measures in domestic UK law until the end of 2019, the committee has urged for the government to “prioritise and expedite” that transposition to ensure a minimum degree of legislature is in place to regulate trading.

According to MPs, that journey must start with a comprehensive government evaluation to decide whether it should even be encouraging the growth of cryptocurrencies in the first place. Last week’s report argued that decentralised blockchain technology is “slow, costly and energy-intensive”, potentially limiting the role blockchain-powered currencies can and should ultimately play in the UK payments sphere.

That being said, an apparent hesitancy to recognise the merit in cryptos didn’t prevent the Treasury Select Committee from advising the remit of the UK’s Regulated Activities Order be extended to include crypto trading activities and hand control over to the FCA.

By way of example, MPs highlighted the regulatory approach adopted by the Gibraltar Financial Services Commission at the start of 2018. This framework essentially introduced a mandatory vetting process for all Gibraltar-based companies involved in blockchain-based activities.

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