While the financial advice industry makes moves to accommodate surging consumer interest in cryptocurrency investment, the asset’s place in portfolios could ultimately be decided by the view professional indemnity insurers take on the sector.
Insurers still remain “cautious” on the idea of putting crypto-assets in approved product lists according to PNOinsurance broker Jared Timms, who says some have started writing crypto-asset exclusions into their AFSL policies. “They just want to make their position clear,” he says.
The industry at large, however, is being forced to reassess the place crypto-assets play in portfolios.
Speaking at Professional Planner’s Researcher Forum last week, Insignia head of research Matt Olsen said Australia’s largest licensee owner is open to embracing digital assets.
“Advisers are certainly asking a lot of questions about it,” Olsen said. “We’ll be interested to look at the products that come out in the space and work with our external research house partners.”
Researchers are also taking a more accommodative approach. At the same event Lonsec chief executive Michael Wright said he viewed digital assets as an emerging asset class.
That view is a slight shift from a little over a year ago, when Lonsec did not see a place for cryptocurrency in advised portfolios.
“The house view is we’re committed to researching quality managed investment schemes,” Wright said. “There are other quality research houses such as SQM that are also looking at some of the start-ups, particularly Monochrome Asset Management [spot based bitcoin fund].
The roadblocks to crypto-assets being adopted remain, however. Alongside the reticence of PI insurers, the caution of regulators remains. ASIC chair Joe Longo explained in September 2021 that a lack of sound information and the global nature of the crypto value chain has hampered efforts to get a regulatory handle on the sector.
“We need changes in licensing that allow dealing in crypto,” Wright said. “Custody is going to be a huge part of the play as we moved forward.”
About-face
Crypto-assets have continued their march to legitimacy, however, with the second half of 2021 marking a turning point in the narrative coming from policymakers and regulators.
Despite it’s caution, ASIC released a consultation paper on crypto asset regulation in June. In November the financial services minister, Jane Hume, said the sector was “not a fad” and should be treated cautiously, but without fear.
The outcome of ASIC’s consultation laid out guidance in October which covered good practice monitoring standards, custody of crypto-assets, pricing methodologies, disclosure and risk management.
After the guidance was released, ETF providers BetaShares and VanEck both announced they would launch Bitcoin and Ethereum funds.
In the same month, a Senate Select Committee led by Andrew Bragg released a report laying out a blueprint to reform the sector to better regulate digital assets.
Bit by bit
The policy inroads puts the spotlight back on PI insurers. According to Timms, insurers could eventually be tempted to “tiptoe in” to crypto-asset acceptance if providers include them as part of a hedge in funds.
“If a potential fund has a diversified fund in terms of equities and wanted to allocate a small part of that fund to crypto, insurers might be ok with that because its diversified,” he says.
“If insurers become comfortable with that type of fund it might be easier to approach advisers and discuss going on a one-on-on basis.
