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However, in the United Kingdom, cryptocurrency, which is rapidly growing in popularity, is not strongly governed. With more than 1,500 available and more created each week, along with stories of people winning and losing fortunes investing in them, some commentators believe the UK should start devising regulations.
Why is cryptocurrency not regulated and why is it so dangerous?
The reason why most cryptocurrency-related activities are not regulated is because they do not fall under the jurisdiction of the Financial Conduct Authority (FCA). In other words, this means that there is no protection for investors because the gains made of cryptocurrency trading are not subject to Capital Gains Tax.
In this respect, it is considered more like the game than the investment. Furthermore, the high level of media coverage means that ordinary members of the public are increasingly inclined to invest while they are potentially unaware of the risks they are taking.
Cryptocurrency is exceptionally volatile. Volatile and unregulated, it offers cybercriminals the opportunity to use cryptocurrency for scams or as a front for financing illegal activities.
Although it receives a lot of media coverage, the market is small compared to other financial products. As a result, regulation has not yet been a top priority. The only rules applied in the UK are from the Treasury, which cryptocurrency traders must disclose their identities and report any suspicious activity they encounter.
However, to meet the growing demand for cryptocurrency, FCA and the Bank of England are currently working with the Treasury on an investigation in order to develop a policy for digital currencies.
Some form of government regulation would bring the world of cryptocurrency into the traditional financial sector. Experts believe that it would stimulate innovation and help establish the UK as a world center for cryptocurrency, where investors can speculate securely and cryptocurrency companies can thrive.
How can cryptocurrency be regulated?
Here are some ideas on the regulations that could be introduced to govern cryptocurrency in the United Kingdom.
The cryptocurrency could be subject to taxation under Capital Gains Tax (CGT)
- The guidelines could be published to help the public navigate cryptocurrency, including ways to discern whether an initial money supply (ICO) was legitimate or fraudulent
- The legislation on advertising campaigns to ensure adequate risk warnings is included for cryptocurrency investors
- Sharing information on cryptocurrency and crimes such as money laundering and terrorism shared between government agencies and financial institutions
On the other hand, the United Kingdom must be careful not to be too heavy. Excessive regulation could stifle innovation and cost the United Kingdom its future place as a world center for digital money. It is a balancing act, especially at a time when the country must keep unnecessary corporate regulations to a minimum.
What are the other countries doing?
Perhaps we should take a leaf from the rest of the world's book. Other countries around the world seem to play a leading role in the regulation of cryptocurrency. In the United States, the Securities Exchange Commission (SEC) is increasing its involvement in ICOs and suspending traders who make false claims.
However, China has taken a different approach. In 2017, it prohibited the trade in cryptocurrency and cryptocurrency sales through ICO. Many would appreciate an international approach to the regulation of cryptocurrencies, although at the moment it seems unlikely.
Facebook and Google have numbers of users and revenue to compete with most countries. These technology giants are also moving away from the cryptocurrency. At the start of 2018, both banned the cryptocurrency advertising from their platforms, claiming that advertisements were too misleading. However, they have now lifted this ban for reliable and pre-approved cryptocurrency firms.
To conclude, if the cryptocurrency must achieve general acceptance, there must be some degree of regulation. The real aspect of this legislation is the real question. Can the government and its regulatory bodies find a balance that would create the UK as a global cryptocurrency center, where investors and the public can play the markets in peace of mind? The survey on digital currencies was published in September and is awaiting a response from the British government.
In the future, cryptocurrencies could become the foundation of the UK financial sector, ultimately able to replace traditional means of payment. Or more likely, become part of a complex framework of systems that interact and are regulated to ensure the financial security of all of us.
