A group of U.K. lawmakers has called for more oversight and regulation of the cryptocurrency industry in a new report published Wednesday.
Arguing that “crypto-assets have no inherent value,” are “especially risky” for retail investors and are “particularly vulnerable to manipulation,” the report states that “the introduction of regulation [to the cryptocurrency space] should be treated as a matter of urgency.”
The report comes roughly seven months after the U.K. Treasury Committee first announced it would look into the benefits and risks of cryptocurrencies.
The group wants to give the Financial Conduct Authority (FCA), the U.K.’s top financial regulator, more authority to regulate crypto markets. The report notes that organizers of initial coin offerings (ICOs), at present, can exploit certain loopholes to avoid scrutiny from the agency.
“Apart from drawing attention to the risks, there is little the FCA can do to protect individuals from being defrauded or losing their money. This is because most ICOs do not promise financial returns, but instead offer future access to a service or utility, meaning they fall outside the regulatory perimeter,” the report states.
The lawmakers went on to add:
“While there may be no explicit promise of financial returns, investors in ICOs clearly expect them: they are not buying tokens to gain access to as-yet unbuilt theme parks, or to obtain dental services in years to come, but in the hope of selling them at a profit. The development of ICOs has exposed a regulatory loophole that is being exploited to the detriment of ordinary investors.”
No stability risk
The report highlighted the speculative interest in cryptocurrencies, noting that “in the absence of any market fundamentals, their prices fluctuate according to sentiment.”
As a result, cryptocurrencies are more volatile than other asset classes, which can result in either greater gains or a greater loss.
“The use of blockchain as a payments system exacerbates these risks, since the exchange rate (vis-à-vis other crypto-assets, or conventional currency) can fluctuate significantly during the time it takes to settle a transaction,” the report added.
That being said, the lawmakers argued that cryptocurrencies don’t pose a threat to financial stability, primarily due to the small number of users and investors. They also noted that cryptocurrencies and blockchain can even be used positively – provided that they are regulated appropriately.
As such, the report noted that “if the government decides that growth is to be encouraged, the committee believes that the introduction of regulation could lead to positive outcomes for the crypto-asset market.”