Overview
The crypto-asset industry in Australia is growing rapidly. The balancing of regulation while encouraging further development is key to any future legal framework.
At the recent 2022 Cryptocurrency Summit hosted by the Australian Financial Review, a range of industry participants discussed the evolving cryptocurrency industry and the issues and challenges which it faces.
One of the matters discussed frequently was the role that banks are expected to play in the future of blockchain and payments given their traditional involvement in the regulatory landscape in Australia.
From a regulatory perspective the presence of ASIC, represented by Commissioner Cathie Armour, was significant. The Commissioner’s speech provided an opportunity to gain a further insight into how ASIC wants to regulate the industry.
An “unregulated” or “under-regulated” industry
A key theme raised by participants were the concepts of being unregulated and under-regulated, and the impact that these characterisations can have on consumer perceptions.
It was highlighted that consumers may generally perceive an industry that is unregulated as operating outside the law (or illegally), which was explained as not necessarily being the case.
In an unregulated or under-regulated industry, consumers may be exposed to unscrupulous operators due to the little to no regulatory oversight. As a result, any negative consequences for consumers, resulting from the action of such operators, have the potential to damage the reputation of the industry as a whole.
Consumer education and broad industry efforts are required to improve the understanding by consumers of crypto-assets, the markets in which they operate and the industry more broadly.
Of course, it was noted that in some circumstances, existing regulatory frameworks provide the necessary basis for regulators to take action against crypto exchanges and service providers, but only in limited circumstances. Generally, this is when the crypto-assets in question meet the existing definition of financial products, or where operators mislead and deceive consumers.
If Australia’s regulatory regime is to keep pace with the crypto industry, while relying on existing frameworks, a significant amount of work will need to be done to broaden the scope and applicability of the law, and to give regulators the tools they need to take action against operators which threaten the industry’s reputation.
The future of banking as we don’t know it?
A long standing consideration of the evolving payments landscape in Australia has been the role of the various participants including the technology providers, the merchants, the payments schemes, the consumers and the banks (as Authorised Deposit-taking Institutions). Traditionally, banks have been a major cornerstone of regulatory requirements needed for payments activities in Australia under the banking and payments laws and payment scheme requirements.
With the evolving crypto-asset industry, the role that the financial institutions play is changing. Blockchain technology and those associated with it present new challenges to the banks who have been the institutions that consumers and businesses alike look to for their secure and efficient payments needs.
These challenges also present new opportunities and as recently as last month, ANZ completed the first ever Australian-bank issued Australian dollar stablecoin (A$DC) payment through a public permissionless blockchain transaction.
This transaction shows that banks, while continuing to play their part in the Australian financial system, may look at adopting the new technology and platforms to better meet customer’s needs, and possibly explore ways to utilise such innovation in order to deliver better outcomes overall.
There is little doubt that banks and other participants in this new environment will all want to have a piece of the pie in delivering banking and payments services to Australians in the future. The size of the piece will depend on a number of factors including future regulation, blockchain development and investments in technology.
ASIC’s Position
The Commissioner’s speech demonstrates ASIC’s recognition of the fast paced evolution of the crypto industry, along with the increased participation of retail investors in crypto markets. The Commissioner stated that:
Our vision is to ensure a fair, strong and efficient financial system for all Australians.
This includes crypto-asset financial products, and they continue to attract our attention.
Our role is to balance innovation and, at the same time, monitor and uphold market integrity and protect consumers.
ASIC clearly considers the protection of consumers a top priority. This position, together with the release of the Treasury’s Consultation Paper on proposed licensing requirements for crypto-asset secondary service providers (which we previously discussed here), shows that it is becoming increasingly important for businesses that offer crypto services to consider how proposed changes may impact them.
The Commissioner’s speech concluded with the following key messages
- Take the time to read and engage with the proposals in the Treasury’s consultation paper.
- Crypto-asset investments are very likely to involve financial products and financial services. ASIC supervises these activities with a focus on its core functions of market integrity and consumer protection.
- We are keen to learn more about the threats and opportunities crypto-assets may bring to our financial system. We have already provided some regulatory guidance about our expectations on how crypto-assets interact with financial services laws.
- If you are involved in crypto-asset investment products, we encourage you to campaign against and interrupt scams and focus your efforts on educating your customers. Report those scams to ASIC and we may be able to use our regulatory powers or our relationships with our co-regulators domestically or internationally to take action.
Need to know more?
If you have questions, or require assistance, in relation to how the evolving regulatory environment may impact your business, please contact our HWL Ebsworth Financial Services Advisory team.
This article was written by Michael Anastas, Partner, and Jordan Donaldson, Law Graduate.
