With cryptocurrency becoming more mainstream, the Australian Securities and Investments Commission (ASIC) remains cynical about the application digital currencies have in the world of regulated finance.
Speaking at the ASIC Annual Forum in Sydney on Thursday in a panel discussion on crypto, ASIC chair Joe Longo said digital currently has no intrinsic value. Scams, ransomware attacks, and criminal activity also occur in the crypto world.
“The capacity for consumer and investor harm is really, really significant,” Longo said.
“My central message for consumers is that this is a risky, speculative and poorly understood activity, which has to be distinguished from the innovation of the underlying technology.”
Longo said ASIC continues to utilise the current laws and its expanded regulatory toolkit to protect investors from these harms.
An example of this was the first application of the regulator’s product intervention laws which recently saw three crypto funds from Holon Investments (covering Bitcoin, Ethereum and Filecoin) having a stop order preventing distribution to retail investors because of non-compliant target market determinations.
The regulator also supports the development of a practical regulatory framework and greater regulatory clarity for this class of products.
Longo said ASIC will also keep taking enforcement action to prevent harmful products and cybercrimes that are already in its jurisdiction.
“Crypto brings together key issues that ASIC is interested in: technology, innovation, and new challenges for regulation,” Longo said.
Despite its flaws, crypto is evolving so fast that it is integrating with the other functions of traditional finance. An ASIC survey of 1,053 Australian retail investors in November 2021 showed that cryptocurrencies were the second-most common product type after Australian shares.
Researchers like Lonsec have also begun to examine crypto assets to help advisers deal with client enquiries.
Decentralised finance (DeFi) businesses and protocols have also been born from crypto technology. They offer financial services like borrowing, lending, and trading through smart contracts (programs stored on a blockchain that run when pre-determined conditions are met).
According to Ross Buckley, Professor of disruptive innovation and law at the University of New South Wales, Central Bank Digital Currencies (CBDCs) – which the European Central Bank says are “a risk-free form of money that is guaranteed by the state” – are where cryptocurrency’s future lies because people today use less cash.
CBDCs are digital versions of a country’s physical currency that people can use to pay for things digitally. They can hold digital currency in an account with a central bank or as electronic tokens on mobile devices, prepaid cards, or other digital wallets. Many people and businesses around the world are considering the use of crypto technologies in CBDCs. Locally, the Reserve Bank of Australia recently announced that it will soon launch a live pilot of CBDCs.
