As cash continues to flood into the crypto-currency market, the UK Treasury Committee is examining the impact digital coins could have on the economy, their potential benefits and the associated investment risks.

The UK has launched an inquiry into crypto-currencies as Parliament fears they are being used by criminals to wash dirty cash and that investors do not fully understand the risks involved. 

The probe by the Treasury Committee, a parliamentary watchdog overseeing financial affairs, will examine the role of crypto-currencies, such as bitcoin, in the UK, as well as the potential impact of the underlying blockchain technology on the financial services sector. 

It will also scrutinise the regulatory response to crypto-currencies from the government, the Financial Conduct Authority (FCA) and the Bank of England, aiming to strike a balance to protect investors without stifling innovation. 

Nicky Morgan, MP and chair of the Treasury Committee, said: “People are becoming increasingly aware of crypto-currencies such as bitcoin, but they may not be aware that they are currently unregulated in the UK, and that there is no protection for individual investors. The Treasury Committee will look at the potential risks that digital currencies could generate for consumers, businesses, and governments, including those relating to volatility, money laundering, and cyber-crime.”

Over the past year, more than $700 billion has flooded into the crypto-currency market at its peak, with investments coming from speculative first-timers through to bitcoin-focused hedge funds trading hundreds of millions of dollars. The crypto-currency market is currently valued at around $431 billion, compared with just $18 billion last January. 



The inquiry will investigate to what extent crypto-currencies could “disrupt the economy and replace traditional means of payment,” Morgan said.

Nigel Green, founder and chief executive of deVere Group, said governments’ and financial regulators’ work to establish rules around crypto-currencies “must be championed” as they have, until recently, “been operating in a regulatory vacuum”.

He said: “There is no question that regulation is necessary and is on its way. It is clearly an area in which there is an enormous need for a robust international regulatory framework and strict ongoing supervision.”

One of the most effective ways to address regulatory issues, he said, is via crypto-currency exchanges, online platforms that facilitate trades of fiat currency for digital coins. 

“Nearly all foreign exchange transactions go through banks or currency houses and this is what needs to happen with crypto-currencies,” Green said. “When flows run through regulated exchanges, it will be much easier to tackle potential wrongdoing, such as money laundering, and make sure tax is paid. For this to happen, banks will need to open accounts for exchanges, which is why they must be regulated.”

He concluded: “Robust regulation that is devised, implemented and enforced by international financial regulators will mean further protection for the growing number of people using crypto-currencies, the less likely it will be that criminals will use these digital payment methods, the less potential risk there will be for the disruption of global financial stability, and the more potential opportunities there will be for higher economic growth and activity in those countries which introduce it.”