Attempts to tame the “wild west” of digital currencies will backfire and damage the UK fintech market, experts have warned.

A plan by MPs to make the Financial Conduct Authority crack down on illegal activity in the crypto industry is “ashamedly geared around Bitcoin” and could penalise any other kind of asset, a new report argued.

Patrick Curry, chief executive of the British Business Federation Authority has claimed that inappropriate legislation could force crypto exchanges to move out of the UK, damaging the country’s standing as a fintech hub.

The BBFA, law firm Baker Botts, crypto analytics company Novum Insights and crypto expert Hazem Danny Al Nakib co-authored the report, which argues that “bad regulation is worse than no regulation at all”.

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Mr Curry said: “It is a very blunt instrument approach and I haven’t seen this in other countries. The use of this technology is still a voyage of discovery and these technologies are being refined for different types of use. My concern is the law of unintended consequences.”

Their report responds to prompts for the Government to extend the power of the FCA’s “Regulated Activities Order”, which governs the UK financial market.

Neil Foster, corporate technology partner at Baker Botts, called for more sophisticated legislation that would avoid lumping together other “crypto assets” such as stocks, shares or bonds under the same rules as one currency.

Mr Foster said: “With sophisticated classification we should work out what could be a regulated activity. If you crowbar everything into the Regulated Activities Order you are making everything into an investment bank.”

MPs have struggled to respond to demands to regulate the crypto market after widespread reports of fraud and money laundering raised alarms that investors are unprotected. HMRC, the Bank of England and the Financial Conduct Authority are currently working on a joint proposal for new regulation.

Earlier this year, Bank of England Governor Mark Carney said Bitcoin was “failing” as a currency, and had become a “global speculative mania” that “exhibited all the classic hallmarks of bubbles”.