The TSC report on crypto: keep calm and carry on – Zoe Wyatt and Laura Knight
Partner and Head of Crypto and Digital Assets, Zoe Wyatt, and International and Crypto Tax Director, Laura Knight, discuss the TSC’s report that recommends unbacked cryptocurrencies be treated as gambling, in Tax Journal.
Zoe and Laura’s article was published in Tax Journal, 30 May 2023.
In their latest report, ‘Regulating Crypto’, the British MPs who sit on the Treasury Select Committee (TSC) sent out an unambiguous warning on crypto investment.
Not only did they urge the UK government to abandon plans to regulate crypto as a financial service, but they also recommended that trading in ‘unbacked’ cryptocurrencies should be treated as a form of gambling.
Harriet Baldwin, the committee’s chair, said: “With no intrinsic value, huge price volatility and no discernible social good, consumer trading of cryptocurrencies like bitcoin more closely resembles gambling than a financial service, and should be regulated as such.”
The report is heavily influenced from select contributors who have strong views against cryptoassets and could be seen as an to attempt at killing off crypto in the UK, once and for all. For those of us who have spent much of the last five years meeting with and writing to MPs, including the TSC, to address their concerns around crypto, it came as an initial shock.
Throughout the process, we espoused the many virtues of crypto assets. More than that, we listened to MPs’ concerns, we provided answers, and we drew their attention to how the industry has evolved far beyond its initial reputation as “the Wild West”.
We are firmly of the view that the TSC’s recommendations are divorced from reality, and suggestive of a predetermined outcome to the inquiry.
Another significant obstacle is that winnings from gambling are generally tax free. The report is conspicuously silent on the possible impacts that this may have on the established approach to the taxation of crypto assets, about which HMRC has reached an opposing viewpoint.
However, this is only the TSC’s view. HM Treasury has provided a response to the TSC report stating:
“Risks posed by crypto are typical of those that exist in traditional financial services and it’s financial services regulation – rather than gambling regulation – that has the track record in mitigating them. Crypto offer opportunities but we are taking an agile approach to robustly regulating the market, addressing the most pressing risks first in a way that promotes innovation.’ “
We are expecting the Crypto and Digital Assets All Party Parliamentary Group (APPG) report shortly, following their own inquiry, which we expect will adopt a more balanced approach to the future regulation of cryptoassets.
The TSC is one cog in a much bigger machine and whilst its report will no doubt be used for discussion purposes in the house, our hope is that at most this will slow progression – not cause an about turn on the UK as a crypto hub.
In summary, the TSC’s report is more than disappointing; but it is just one report out of a number of published views and the narrative remains that the UK want to be a global crypto hub, so we need to keep calm and carry on.