This article follows a session on this topic held at the ASIC Annual Forum (AAF), 3-4 November 2022. Catch up on session highlights from the Forum.

The session was moderated by Ticky Fullerton, Business Editor at Large, The Australian.

Panel:

• Joe Longo, Chair, ASIC
• Professor Ross Buckley, Scientia Professor, KPMG Law and King & Wood Mallesons Professor of Disruptive Innovation and Law, University of New South Wales
• Caroline Malcolm, Head of International Public Policy and Research, Chainalysis Inc.
• Dr John Moss AIM, Deputy Chief Executive Officer, Intelligence Division, Australian Transaction Reports and Analysis Centre (AUSTRAC)
• Professor Talis J. Putnins, Professor of Finance, University of Technology Sydney; Chief Scientist, Digital Finance Co-operative Research Centre

Key points

• Crypto continues to pose challenges and opportunities for regulators and policymakers alike.
• ASIC continues to utilise the current laws and its expanded regulatory toolkit – including the design and distribution obligations regime, or DDO – to protect investors from harms arising from risky, volatile, and complex products.
• This session explored the challenges and potential benefits posed by the crypto ecosystem, recent global developments in crypto and decentralised finance (‘DeFi’), and whether international regulatory responses will achieve the right balance.

The world of crypto is evolving at lightning pace and encroaching further into the functions of traditional finance.

In recent years there’s been a sharp increase in retail investor interest and activity in crypto. This upswing was amplified further by the pandemic, with ASIC research (survey of 1,053 Australian retail investors in November last year) showing that cryptocurrencies were the second-most common product type after Australian shares.

ASIC Chair Joe Longo said, ‘crypto brings together key issues that ASIC is interested in: technology, innovation, and new challenges for regulation’.

On investor activity, Mr Longo added that ‘the capacity for consumer and investor harm is really, really significant’ for cryptocurrencies.

‘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.’

ASIC’s regulatory strategy

During the session, Mr Longo spoke to the three cornerstones of ASIC’s crypto regulatory strategy:

• First, ASIC supports the development of an effective regulatory framework and greater regulatory clarity for this class of products.
• Second, ASIC will also continue to take enforcement action to disrupt and deter harmful products already in our jurisdiction. ASIC is also working to disrupt scams involving crypto.
• And third, we are collaborating and cooperating with our domestic and international peers. Insights and intelligence gained internationally helps ASIC prepare for emerging risks and will inform ASIC’s work with Treasury and the Australian Government on the most effective regulatory framework.

Technological developments and innovation

Crypto-assets and distributed ledger technology have given rise to a new constellation of DeFi businesses and protocols. These entities offer financial services like borrowing, lending, and trading without the need for legacy institutions – instead utilising smart contracts.

Around the world, the use of crypto and blockchain technologies in Central Bank Digital Currencies (CBDCs) are being considered. Locally, the Reserve Bank of Australia recently announced that they will be launching a live pilot of CBDCs.

ASIC is Australia’s corporate, markets and financial services regulator.