In a recent report, a UK legislative committee has acknowledged the potential of cryptoassets and their underlying technologies to revolutionize financial services, particularly in streamlining payments and reducing associated costs. They specifically point to the potential benefits for cross-border transactions and economies with underdeveloped financial sectors.
However, the committee raised concerns about the current regulatory challenges faced by the Financial Conduct Authority (FCA) in managing the burgeoning cryptoasset industry, emphasizing the need for the Government and regulators to keep pace with these rapidly evolving technologies.
While the committee supports innovation in the financial sector, they caution that the true extent and impact of cryptoasset technologies remain uncertain, with significant risks to both consumers and the environment.
The legislators recommend a balanced approach, urging the Government to avoid investing public resources in cryptoasset activities without a clear, beneficial use case. They cite the recent failed attempt to produce a Royal Mint non-fungible token (NFT) as an example of misdirected efforts.
The report also calls for a shift in the regulatory approach towards unbacked cryptoassets, such as Bitcoin and Ether. Due to their volatility and lack of intrinsic value, the committee argues that these assets pose substantial risks to consumers, likening speculation in these assets to gambling.
Therefore, they strongly recommend that retail trading and investment in unbacked cryptoassets be regulated as gambling rather than as a financial service, to prevent consumers from misinterpreting the risks involved.