With France's recent consideration of a law that would govern ICOs being a notable exception, European countries have for the most part been slow to regulate the cryptospace. But a parliamentary committee in the UK thinks the time to act is now. On Wednesday, the group released an extensive report that calls for the Financial Conduct Authority (FCA) to be granted the authority to regulate ICOs, in hopes of creating an environment where cryptofinance can thrive.
But the report the group produced does not display much affection for cryptocurrency, ICOs, or even blockchain tech.
The report claims there is to date not a single cryptocurrency that adequately fulfills the three roles of money (functioning as a store of value, a medium of exchange, and a unit of account). Consequently, cryptocurrencies can't even rightly be called "currencies." (The report instead refers to them as "digital assets.")
"Well-functioning cryptocurrencies currently exist only as a theoretical concept," the report claims.
The authors of the report remain unconvinced that these "assets" can benefit those who are currently excluded from financial markets. "Efforts to further financial inclusion are best focused on reducing the number of people without access to bank accounts, rather than increasing the numbers with access to crypto-assets," the report states.
They are also skeptical that the financial industry can benefit much from blockchain technology, finding it "slow, costly, and energy-intensive," and writing "the Committee has not been presented with any evidence to suggest that universal applications of the technology are currently reliably operational."
Despite these doubts, the authors of the report still, for whatever reason, hope the UK will become a "global centre for this activity," and believe that may happen if a stable regulatory environment can be created. At the very least, this should involve anti-money laundering and consumer protection regulations.
For now, the UK is party to anti-money laundering rules. One of the few actions Europe has taken regarding cryptocurrency is the adoption of the fifth anti-money laundering directive. The committee praises the directive, describing it as a "step forward." However, the directive will cease to apply to the UK once the country exits the European Union.
The consumer protections recommended by the report primarily regard ICOs, which currently exist in a confusing regulatory situation. When an ICO represents a "transferable security," the FCA has authority to regulate and offer some investor protections. But "when tokens represent a claim on prospective services or products," they do not fall under the FCA's purview. Ultimately, most ICOs in the UK are unregulated.
In its conclusion, the group writes:
"[T]he Committee believes that the introduction of regulation could lead to positive outcomes for the crypto-asset market. The implementation of crypto-asset regulation in the UK may enable the market place to move to a more mature business model that improves consumer outcomes and enables it to grow sustainably."
Why they would want it to grow, given their skepticism, is anyone's guess.