In a September 19, 2018 report, British parliamentarians said that most of the initial coin offerings (ICOs) are not governed by the rules of the Financial Conduct Authority (FCA), which leaves investors virtually defenseless against fraudulent schemes.
The code of conduct in the cryptocurrency sector is absolutely voluntary, and this will inevitably lead to the fact that not all market participants will follow it. The Treasury Committee of the United Kingdom believes that self-regulation on this issue is clearly not enough, and therefore, at a minimum, it is necessary to introduce uniform rules for the protection of investors' rights. In addition, legislative initiatives are needed to prevent the possibility of money laundering through the crypto sector.
The Crypto Market in Britain: Pros and Cons
The cryptocurrency market is a very large-scale topic, and the committee primarily focused on the consideration of Bitcoin and blockchain technology.
In recent years, there has been a significant increase in the popularity of distributed ledger technology, and many organizations are trying to assess the use of blockchain as an addition or alternative to existing database technologies. For example, the former Secretary of State for Digital Technologies, Culture, Sports, and Media, Matt Hancock, in April, while still head of the department, said that government agencies have a great interest in attracting detainees to solve a wide range of issues.
"My second point is that blockchain technology holds real potential to make Government services more efficient. Its multi-faceted nature means we all stand to benefit. This technology could help us solve some of the great global social challenges of our time. The World Food Programme is running a pilot in a Jordanian refugee camp, where over 10,000 Syrian refugees can buy food from local shops with merely a scan of their eye. There is no need for cash, credit cards, or paper. The transactions are instead recorded on the blockchain. And blockchain-based crypto assets are now being developed to reward solar electricity generation, to support the provision of clean water, and to provide innovative models of charitable giving. So the benefits are clear and we want to see them here in the U.K.," said Hancock.
In spite of a number of advantages of the innovative technology (including transparency, security, and the immutability of the ledger), however, the parliamentarians also noted some limitations. For example, the Bank of England told the Treasury Committee that "blockchain will still have to prove that it will be able to meet the performance standards typical of more traditional technologies" and that at present, it is slow, expensive, and energy-intensive as a basis for verifying and conducting transactions.
The committee's greatest concern at the moment is the digital asset market as an area with a lack of regulatory policies. The government and regulators need to assess all the possible risks of this sector and consider whether it is worth encouraging its development and growth. British parliamentarians believe that a clear legislative base will lead to positive results in the crypto industry, including the transition to a more mature business model and an increase in liquidity.
The committee also stressed that the U.K., given its strong reputation in the field of finance and financial technology, has every chance of becoming a global center of the digital industry.
British Parliamentarians Are of Poor Opinion on Digital Assets
How does crypto money relate to the area of traditional finance? Members of the committee emphasized that fiat money usually acts as a means of exchange, a carrier of value, or a unit of account, and at the moment, there are no crypto assets that perform these functions. The report says that digital money is "widely used for speculation," and perfectly functioning cryptocurrency exists only as a theoretical concept.
The high volatility of digital assets was not ignored. Unprecedented fluctuations in the price of Bitcoin threaten investors not so much with fabulous profits but with the risk of losing capital. Players in the crypto market should be ready for this at any time.
The Treasury Committee of the United Kingdom is seriously concerned about the fact that investors are deprived of all guarantees and insurances in the case of hacking. This motivates parliamentarians and government officials to develop new regulatory acts.
Finally, digital assets and actions with them are not currently regulated by the general rules for combating money laundering, and as a consequence, given their inherent anonymity, they can facilitate the purchase and sale of illicit goods and services, and can also be used to launder criminal proceeds.
The fifth E.U. directive on combating money laundering and the financing of terrorism (applicable to the crypto sector) will come into force in the U.K. only at the end of 2019. The committee urges the government to prioritize and accelerate the process.
Commenting on the report, Nicky Morgan, chairman of the Treasury Committee, said: "Bitcoin and other digital currencies live and develop according to the laws of the Wild West. This unregulated industry exposes investors to numerous risks. The Treasury Committee is firmly convinced of the need for state regulation of cryptology. The government and regulators can no longer refrain from taking decisive action and limiting themselves only to feeble warnings to potential investors. At a minimum, regulation should concern consumer protection and combating money laundering. If the government decides that the growth and development of the crypto sector should be encouraged, appropriate regulatory acts will make the U.K. a global hub of this industry."