The corporate regulator has appealed to the broader financial services industry for help in understanding the best way to regulate crypto-assets that are used as the underlying assets for exchange-traded funds and other investments.

On Wednesday ASIC released consultation paper 343 Crypto-assets as underlying assets for ETPs and other investment products, seeking feedback on proposed regulatory guidelines for the adolescent asset class.

The paper runs on the assumption that crypto-asset exchange-traded products are financial services and thus regulated under the Corporations Act, ASIC noted, but how these assets are classified is ultimately a matter for the Australian government

The consultation paper sets out some of the initial views ASIC has on how to regulate the sector, according to commissioner Cathie Armour.

“The proposals set out good practices for market operators and product issuers regarding crypto-asset ETPs and other investment vehicles that provide retail investors with exposure to crypto-assets,” Armour said.

“Market operators and product issuers need to be mindful of meeting their existing regulatory obligations when creating, operating and allowing such products, so they can be facilitated in a way that maintains investor protections and Australia’s fair, orderly and transparent markets,” she continued.

There is an increasing appetite for crypto-asset exchange-traded products in the retail and wholesale investment markets. In  podcast released this week on crypto-assets for first-time investors, Hema Raman, Crypto-Asset Coordinator at ASIC, explained the increased interest.

“There is a growing push for crypto-assets to be accessed via more traditional investment products, such as an Exchange Traded Fund or ETF that invests in crypto-assets,” Raman said. “Early days yet, but we can see significant sections of the market apparently getting ready for at least some areas of the crypto-universe to become more ‘mainstream’.”

Much of the purchasing arrangements around crypto-assets, especially those that occur on foreign digital exchanges, make consumer protection difficult, Raman said, increasing the risk for consumers.

Scams have become increasingly prevalent, with criminals keen to tap into a broader mainstream market.

“The platforms where you buy and sell crypto-assets are likely not regulated by ASIC. So, you could be buying off a platform without necessarily having any recourse if things fail,” she said.

“If you’ve invested in a crypto asset that you thought was legitimate but ended up being fraudulent or a scam, and this can be easy to do, you risk losing all of your money,” Haman continued. “Once money is overseas, it’s likely gone and crypto assets are even harder to trace or recover than money.”

Submissions to the consultation will close July 27, ASIC advised.

 

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
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