‘Wild West’ Crypto Sector Needs Regulation: U.K. Treasury Watchdog

Fluctuating prices, money laundering risks, and few safeguards for consumers have made cryptocurrency markets the “wild west,” according to the U.K.

The U.K. government in a Sept. 19 report called for industry regulations, and argued that current ambiguity is “clearly not sustainable.” The report was published by the influential Treasury Select Committee, and urged the U.K. to learn from other countries that have taken steps to rein in cryptocurrency markets.

“If the U.K. develops a proportionate regulatory environment for crypto-assets, the UK could be well placed to become a global center for this activity,” the report said.

The U.K. was one of the first European countries to issue tax guidance on bitcoin and other digital currencies. But since then, it has lagged behind countries like Germany, Italy, and France.

Creating a regulatory framework for the digital tokens is a top priority across the EU, as countries fear tax evasion and money laundering.

The committee’s report comes as the government awaits an assessment from the U.K.'s cryptocurrency task force, which was tasked with considering whether the digital currency market posed a risk or opportunity, and whether regulation would be necessary. The taskforce, made up of senior officials and financial regulators, is expected to release its findings later this quarter.

Crypto-asset exchanges, in which individuals can convert tokens into conventional currency, also pose risks, the Treasury Select Committee’s report said. Several of the exchanges have been hacked, and consumer data has been stolen, the report said.

While the adoption of the fifth revision of the EU’s Anti-Money Laundering Directive is progress, the cryptocurrency exchanges aren’t included in the directive. The U.K.'s consultation on turning the directive into regulation also isn’t expected to finish until the end of 2019, the report said.

“The Committee has urged the Government to prioritise and expedite the transposition,” the report said.

The report’s findings were welcomed by tax practitioners who echoed its call for regulations.

Hamish Thomas, partner at EY, said: “We welcome the report today. It highlights that risks do exist with crypto currencies, potentially impacting individuals, businesses and the financial system, and that they need to be managed with proportionate regulation, whilst also expressing support for innovation with this emerging technology to further improve customer outcomes.”

“We welcome the Treasury Committee’s findings and feel it is in keeping with what HMRC and the Treasury have been trying to argue for, as cryptocurrency exchanges are currently south of scope when it comes to anti-money laundering laws,” said Shukry Haleemdeen, founder of mycrpytotax.co.uk. “By regulating exchanges we can make sure that the system as whole is more robust.”