MPs on the APPG have urged the government to introduce tougher regulation on cryptocurrency, and appoint a crypto tsar to oversee the sector
There remain a number of ‘potential barriers’ to the UK fulfilling its vision to become a global cryptocurrency and digital asset hub, according to the All Party Parliamentary Group (APPG) on cryptoassets.
The inquiry listed 53 recommendations for the government to introduce within the next 12 to 18 months to avoid the UK ‘falling behind’ other countries in relation to the regulation of the cryptoasset sector.
The APPG recommended that HMRC release a ‘clear framework’ for the taxation of cryptocurrency and digital assets – particularly as the UK’s tax regime was written when crypto did not exist.
The report said: ‘Whilst the APPG welcomes the steps taken by the government thus far on the taxation of cryptocurrency and digital assets, the inquiry heard that there remains a need for further clarity for investors in relation to the UK’s tax framework.
‘The government should consider issuing updated guidance on the taxation of cryptocurrency and digital assets in the UK and also consider a comprehensive tax framework which ensures that the UK remains internationally competitive, provides clarity for investors and generates appropriate revenue.’
The report also flagged concerns regarding the risks to consumers from fraud and scams associated with cryptocurrency, which saw over £146m being lost in 2021, according to Action Fraud figures.
The MPs called on the government to increase awareness of the potential risks associated with cryptocurrency, and to ensure ‘adequate safeguards and protections’ are in place.
Investment in using cryptocurrency and digital assets has increased in recent years, with around 2.3 million individuals holding some cryptocurrencies in 2021 – up from 1.9m in 2020.
However, without comprehensive regulation, growth could present considerable risks in terms of consumer protection, economic crime, and financial stability, warned the APPG.
Given the broad nature of cryptocurrency, the group suggested the need of a more ‘coordinated approach’ which could be overseen by a crypto tsar to help oversee regulation across all departments and bodies.
The APPG also invited views on the approach of UK regulators, in particular the role of the Financial Conduct Authority (FCA), the Bank of England, and the Advertising Standards Authority (ASA).
Recent high-profile events such as the collapse of the major exchange FTX have focused the minds of global regulators on the need for proper supervision to protect consumers and the financial system.
Thus, the APPG stated that all UK regulators should be equipped with the proper resources and understanding to deliver on their responsibilities related to the sector – and to ensure they can ‘keep pace with the rapid developments’ in emerging technology.
With a number of countries having already moved quickly to develop regulatory frameworks the report called on the UK government to ‘move within a finite window’ of 12 to 18 months to ensure early leadership within the sector.
Dr Lisa Cameron MP, chair of the APPG, said: ‘This is the first report of its kind compiled jointly involving MPs and the House of Lords and we are keen that it contributes to evidence-based policy development.
‘The growth of the cryptocurrency and digital asset sector, without comprehensive regulation, presents considerable risks, particularly in terms of consumer protection, economic crime, and financial stability.
‘Regulation of cryptocurrency and digital assets within financial services is vital to addressing consumer risks whilst harnessing the sector’s potential and contribution towards economic growth.’
Formed in response to growing scrutiny of the sector, the APPG launched an initial inquiry in August 2022 to learn more about the opportunities to ‘significantly transform’ the financial services system through crypto and digital assets.
HMRC has already issued guidance for the treatment of cryptocurrency for taxation purposes. However, the tax rules are still confusing for many investors, with more needed to be done for ‘further clarity’.
Commenting on the report, Dion Seymour, crypto & digital assets technical director at Anderson LLP, said: ‘The recent report into the regulation of the UK crypto asset sector by the Treasury Committee created waves across the industry.
‘The recommendations made by the APPG are more balanced, with the APPG recognising the opportunity to develop the crypto asset industry in the UK. The APPG recognises the reality of crypto assets: that to have consumer protection requires regulatory clarity – something that the industry has been asking for since 2018.’
The full report can be found here