On September 19, the UK’s House of Commons Treasury Committee (Treasury Committee) published a report on its inquiry into crypto-assets, launched in February 2018. The report is an update of what was provided on its website in May 2018 (for further details, see the May 25, 2018 edition of Corporate & Financial Weekly Digest).
Key findings and conclusions in the Treasury Committee’s report include the following:
- Although crypto-assets are embedded in certain parts of society and industry, they are extremely risky for investors, as are initial coin offerings (ICOs). Owing to their anonymity and absence of regulation, crypto-assets also can facilitate the sale and purchase of illicit goods and services, as well as launder the proceeds of serious crime and terrorism. The Treasury Committee believes the UK Financial Conduct Authority (FCA) should be the relevant regulator for supervising anti-money laundering.
- The FCA’s consumer warnings are a “feeble corrective” to advertisements, such as on social media and billboards, that only emphasize the upside opportunities of crypto-asset investing and are misleading to consumers. The Treasury Committee believes that the FCA needs more power to control how crypto-asset exchanges and ICO issuers market their services by bringing the activities they perform into the regulatory perimeter. This also would provide investors with wider protections against mistreatment, such as the loss of deposits through fraud and hacking.
- Regulating crypto-assets should be treated as a matter of urgency, given the growing risks surrounding crypto-assets. The Treasury Committee believes that introducing the regulation of crypto-assets and associated activities by extending the UK Regulated Activities Order would be the quickest method of providing the FCA with the necessary legal powers to execute its duties of protecting consumers and maintaining market integrity.
- Crypto-asset markets are particularly vulnerable to manipulation, yet they fall outside the scope of market abuse rules. The Treasury Committee suggests that, in response to the report, the FCA should outline the approach it would take to market manipulation should these markets fall within its remit.
- UK regulators should engage with international bodies to ensure best practices are identified and applied.
The Treasury Committee’s report is available here.