MPs call for regulation of ‘wild west’ cryptocurrency market

The “wild west” world of cryptocurrencies should be regulated by the City watchdog, MPs have said.

In a new report, the influential Treasury Committee has warned that some investors in the blockchain-based assets were not fully aware of the risks and should be prepared to “lose all their money”.

Consumers are currently afforded little protection from risks including hacking, money laundering and volatile prices, according to the report.

“Bitcoin and other crypto-assets exist in the wild west industry of crypto-assets. This unregulated industry leaves investors facing numerous risks,” said Treasury Committee chairman Nicky Morgan.

“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.”

Bitcoin, Ethereum and a whole host of other cryptocurrencies have gained rapid popularity, with Bitcoin’s value soaring from 900 US dollars (about £685) to 20,000 US dollars (about £15,000) in 2017.

Many new cryptocurrencies have been launched in the past year through initial coin offerings (ICOs).

The committee recommended that the Financial Conduct Authority (FCA) should be responsible for crypto asset markets, but said that the watchdog’s efforts to inform consumers so far were a “feeble corrective” to widespread advertising for crypto investments.

“The FCA needs more power to control how crypto-exchanges and ICO issuers market their services, by bringing the activities they perform into the regulatory perimeter,” MPs recommended.

In a damning assessment of the current crypto landscape, MPs on the committee concluded that most investors expect a financial return from investments in ICOs, even though most do not promise this, instead offering future access to goods and services.

This could open a potential regulatory loophole as the FCA’s current regulatory powers do not extend to investments offering access to utilities.

MPs also suggested that the European Union’s latest guidance on anti-money laundering should be adopted by UK law as quickly as possible.

If the UK leaves the EU without a transition period in March 2019, the committee said the Government should still replicate the regulation.

Under the EU’s Fifth Anti-Money Laundering Directive, the exchanges allowing users to trade crypto assets will need to comply with counterterrorist and anti-money laundering rules.

A Treasury spokesman said: “We set up the joint Cryptoassets taskforce earlier this year because we want to better understand the potential risks and benefits of cryptoassets to people, businesses, and the economy.

“By working closely with the FCA and Bank of England, we plan to set out an approach that will encourage innovation and manage risks.

“The taskforce will report back later this year.”