Cryptocurrency investment took a step closer to the mainstream – and the financial advice sphere – Wednesday with the release of the Senate Select Committee on Australia as a Technology and Financial Centre’s final report into the future of digital assets in Australia.
The report, spearheaded by Liberal Senator Andrew Bragg, laid a blueprint to reform the sector headlined by the establishment of a market licensing regime for digital currency exchanges (DCEs).
The proposal contains several other key measures aimed at legitimising the sector, including a government run custody regime for digital assets, a digital asset “token mapping exercise”, the establishment of a “decentralised autonomous organisation” company structure, and a reset of anti-money laundering and capital gains tax parameters for the sector.
A market licensing regime that would provide regulatory guardrails and a measure of consumer protection for the sector has the potential to bring interest in digtial investment closer to the advice spectrum as consumers see blockchain-based investment as safer and more viable.
Already, according to the report, 25 per cent of Australians hold or have held cryptocurrencies.
Financial advisers typically eschew the sector. This will likely continue, but with more consumer interest and the possibility of a licensed and regulated market, advisers with the requisite know-how could become sought-after.
The advice industry is likely far from that point, however. Regulating the market would remove a significant roadblock for crypto assets to enter the advised market ecosystem, but many others remain.
“Technically it’s not even a financial product,” says Brisbane adviser Tyson Jonas. “When I have clients, typically younger ones, who ask about Bitcoin or Ethereum I tell them I don’t know how to value this asset class or assess its use case scenarios and I’m not able to provide advice on investments within this asset class.”
Even if the volatile nature of crypto investments could be accomodated in a client portfolio, the compliance considerations remain. The sector is highly technical. Satisfying the Code of Ethics requirement that clients understand the “benefits, costs and risk” of crypto investment is problematic unless both the adviser and the client are subject matter experts.
“I would be very conscious of the compliance risks,” says GPA Finanical Services principal adviser Jason Poole. “Once you overlay the Code of Ethics… it’s fraught with risk.”
Compliance teams, legal officers, responsible entities and professional indemnity insurers are unlikely to relish the extra risk of putting crypto-currency investments on their approved product lists.
Licensees, already noted for being “overly conservative“, will be similarly reticent to get involved. “Noone wants to stick their neck out on something like this,” Jonas says.
The emergence of exchange-traded funds – Betashares is preparing to launch a “crypto-innovators” ETF in Australia soon – has the potential to spark interest among investors, but advisers are unlikely to advocate early adoption.
“It would have to be a complete and utter punt,” Poole says.
The popularity of Crypto and the fact that your financial adviser cannot really talk about it with risking their business is yet another indication that the current licensing regime and focus on “checking boxes” is a poor way to regulate the financial advice industry.
We should be able to help our clients navigate in this space without risking our businesses. RIght?