ASIC pushing ahead with world-leading rules to govern digital assets

The Australian financial conduct regulator is forging ahead with world-first rules to govern digital assets, including complex crypto tokens that allow for decentralised control in place of traditional boards.

Australian Securities and Investments Commission (ASIC) is part of a multi-agency working group that is looking to develop a strategy for the regulation of cutting-edge financial assets that defy traditional regulatory oversight. The federal Treasury department is leading the project along with the Council of Financial Regulators (CFR).

“As an organisation, we remain keenly attuned to the fast-shifting crypto landscape and continue to work with domestic and international counterparts to consider regulatory responsiveness to crypto,” said Joe Longo, chairman of ASIC, during a Senate Estimates hearing.

“We’re contributing to the Treasury-led CFR working group. We also took the first tentative step towards regulating crypto by issuing guidance for exchange-traded products with crypto as underlying assets.”

ASIC has also released guidance for market participants that deal with the digital tokens.

“Our guidance sets out good practices for market operators and market issuers in meeting their existing obligations, so that crypto-asset [providers] can be facilitated in a way that maintains Australia’s fair, orderly and transparent markets and key investor protections.”

“On their own”

Despite ASIC’s work on a regulatory framework, the agency has warned investors that the space is presently lightly regulated. ASIC officials have said investors are “on their own” when they invest in many crypto assets. Longo said investors need to be cautious when buying into these asset classes as they may not have recourse to investor protections under the Corporations Act 2001.

“Consumers should approach investing in crypto with great caution,” Longo told the recent Australian Financial Review Conference. “At present many crypto-assets are probably not ‘financial products’ …. for the most part, for now at least, investors are on their own.”

Traditional banks in Australia are showing a tentative interest in supporting digital asset investments. Earlier this month, Commonwealth Bank of Australia became the first major bank in the developed world to offer a platform for retail customers to trade cryptocurrencies.

“Crypto is on our doorstep, here and now, and being driven by extraordinary consumer and investor demand. The implications for consumers are potentially huge,” Longo said.

The regulator is also working on new rules to regulate decentralised autonomous organisations (DAOs), which are governed by cryptography and software, rather than a traditional board of directors.

“ASIC does not strive to eliminate risk. But, nor should we ignore it,” Longo said.

Enforcement outlook

On the enforcement front, ASIC is seeking to establish itself as a targeted but feared regulatory agency in the wake of a spate of mishaps in recent years. The approach to enforcement will be responsive to changes in the broader regulatory environment, Longo told the Senate hearing.

“I want to affirm the message that I have conveyed in different forums recently: ASIC will continue to be a strong and targeted law enforcement agency. We will use the full suite of tools and powers to address wrongdoing,” he said.

With additional reporting by Paulina Duran, Reuters.

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Cyber crime spreads in Australia as COVID-19 pushes more people online

This article first appeared on Thomson Reuters Regulatory Intelligence.

Nathan Lynch is an experienced writer, public speaker, manager and technology enthusiast in the field of financial regulation and risk management. At Thomson Reuters, Nathan leads a team of experts who provide breaking news, deep analysis and practical guidance to risk practitioners in the global financial services sector.
Nathan manages Thomson Reuters’ award-winning Regulatory Intelligence team across the Asia-Pacific region, tracking developments in financial services law, regulation, financial crime and risk management.
Nathan has been involved in building innovative, tech-based businesses in the financial services “regtech” sector — including Complinet Australia and the Thomson Reuters Risk business.

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