Digital assets: Financial products and services

Consumers should read information and warnings about crypto-assets on our Moneysmart website. Consumers are only protected by the financial services laws ASIC administers to the extent that any digital assets and related services are subject to those laws. If you invest in something that is unlicensed or unregulated in Australia, it is harder to get help if things go wrong.

Overview

This information sheet is not, and is not intended to be, an exhaustive discussion of:

• all the relevant Australian laws, regulations, ASIC guidance or ASIC relief about financial products and services
• how digital assets and any related products, however structured, fit into the existing financial services regime, or
• your legal and regulatory obligations.

It is your responsibility to ensure you understand and comply with all relevant and applicable Australian laws and regulatory requirements.

Note: The scope of what is and is not a financial product differs slightly between the Corporations Act and the ASIC Act.

For a discussion of distributed ledger technology, see Information Sheet 219 Evaluating distributed ledger technology (INFO 219).

The use of offshore or decentralised structures does not mean that key obligations under Australian laws do not apply or can be ignored: see Regulatory Guide 121 Doing financial services business in Australia (RG 121). Australian laws apply where the digital asset is promoted or sold, or services are provided in relation to them, in Australia, including from offshore. We encourage entities to build their products and services in a way that complies with the intention of the laws in place to safeguard consumers and the integrity of financial markets in Australia.

Note: This information sheet does not comment on when someone in a ‘decentralised finance’ (or DeFi) arrangement may require a licence, or what might be considered ‘true DeFi’. Whether a person needs a licence in these circumstances is dependent on the individual facts of each DeFi arrangement and the person’s role and offering in the arrangement and/or ongoing participation.

Other supporting documents, legislation and examples

Links to other supporting documents are included throughout this information sheet. Guidance provided here should be read together with that broader material.

The 18 hypothetical worked examples in Part A of this information sheet are not exhaustive. They are designed to help you think about these issues, but each product needs to be assessed on its own facts and circumstances. The examples provided indicate whether the digital asset or related product is likely – or unlikely – to be a financial product and, if so, which type of financial product.

The Corporations Act references through this information sheet are relevant for determining the licence authorisations and regulatory obligations that may apply to your digital asset offerings. Also, as changes in rights and benefits over time may change the legal status and financial products classification of a digital asset, it is your responsibility to reassess a digital asset as rights and benefits change.

This information sheet is based on current law. As at the date of this update, the Australian Government is consulting on an exposure draft for amendments to introduce digital asset platforms and tokenised custody platforms as new financial products (see Regulating digital asset platforms – exposure draft legislation on the Treasury website), as well as for payment service providers, which includes proposals to regulate certain stablecoins (see Regulation of Payment Service Providers – Tranche 1a draft legislation on the Treasury consultation hub). This information sheet may be updated in due course to reflect these developments when they are finalised, and relevant case law developments.

INFO 225 also refers to the Australian Consumer Law. However, it does not cover Australian legislation administered by other regulators who oversee digital assets and digital asset service providers, such as the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Australian Prudential Regulation Authority (APRA), the Australian Taxation Office (ATO), the Australian Competition and Consumer Commission (ACCC), and the Reserve Bank of Australia (RBA).

This information sheet now uses the term ‘digital assets’ (it previously referred to ‘crypto-assets’). However, it is intended to apply to a wide range of digital and crypto-assets, whether described as digital assets, crypto-assets, virtual assets, tokenised assets, tokens or coins. Accordingly, the term ‘digital assets’ is used in a general context and its use is not intended to exclude any particular product.

Background

Entities and their advisers need to consider all the rights and benefits attached to the digital asset, as well as the rights and benefits attached to the arrangements provided in connection with the digital asset. This includes the way in which the products will be offered to, and used by, the consumer in practice. This analysis is critical to determining whether the digital asset, and/or arrangement related to the digital asset, is a financial product.

Our experience suggests that people often seek to raise money from the public or privately to fund a particular project (e.g. an enterprise) by issuing digital assets. If the digital asset, or a related product, is a financial product, the issuer will need to comply with the relevant provisions of the Corporations Act, such as Australian financial services (AFS) licensing requirements and/or other regulatory requirements, subject to any relevant exemptions. These regulatory requirements are in place to maintain the integrity of Australia’s financial markets and to protect consumers and investors.

If you are operating without a licence or without being an authorised representative of a licensee, you should be prepared to substantiate and justify why the digital asset(s) or related products or arrangements are not a regulated financial product (and why you are not undertaking a financial service or operating a market or clearing and settlement (CS) facility that requires a licence – see Part B and Part D). You should be able to justify this in relation to all aspects of your offering. For example, a project may in some circumstances feature multiple types of digital assets and involve one or more arrangements which may need to be assessed individually and then in combination.

This section considers types of digital assets made available to consumers in Australia and whether the Corporations Act might apply to them as various types of financial products. It addresses the following question – when could a digital asset, or product involving digital assets, be:

• a facility for making a financial investment?
• an interest in a managed investment scheme? (‘scheme’)?
• a security (e.g. a share or a debenture)?
• a derivative?
• a non-cash payment facility?

This is not an exhaustive list of financial products to consider.

Any given digital asset or related product could potentially meet more than one financial product definition in the Corporations Act (e.g. a digital asset could potentially meet the definitions of both a debenture and a non-cash payment facility). In those cases, the priority of classification of financial products set out in the Corporations Act applies: see section 762A. 

Aggregated arrangements

Even if a digital asset, when considered by itself, is not a financial product, if it is bundled together with one or more other products or services, and it is reasonable to assume that the parties to the arrangement regard them as a single arrangement, the arrangement may be a financial product: see section 761B of the Corporations Act. This would also mean that a person giving advice on or dealing in that aggregated arrangement would be providing a financial service: see Part B.

When a broader facility is made up of multiple components, of which one component is a financial product, the Corporations Act will apply to the component that is a financial product: see section 762B of the Corporations Act.

Incidental products and broader facilities

If a digital asset, or an arrangement involving a digital asset:

• forms an incidental part of a broader facility, or is an incidental facility to one or more other facilities, and
• it is reasonable to assume that the broader facility or those combined facilities do not have the main purpose of making a financial investment, managing financial risk or making non-cash payments,

it will be treated as incidental: see section 763E of the Corporations Act.

A product that is treated as incidental is not a financial product, unless specifically included under section 764A of the Corporations Act.

Rights and benefits attached to digital tokens and assets

The rights and benefits attached to digital assets, or products involving digital assets, are a key consideration in assessing the legal status of those digital assets and products. These rights and benefits can be described in terms and conditions, or a ‘white paper’, or other documents issued by the business making the offer or sale of the digital asset. Rights and benefits may also be determined from other circumstances (e.g. by how the digital asset is marketed to potential clients, advertising materials, communications with clients and other documentation which sets out legal rights and benefits attached to a digital asset and its related arrangements).

What is a ‘right’ should be interpreted broadly. Rights that may arise in the future or on a contingency, and rights that are not legally enforceable, are included.

The rights and benefits may change over time with changes in the features or uses of the digital asset and how common use of the digital asset evolves: see Digital assets that are, or involve, a facility for making a financial investment.

For convenience, in some places this information sheet refers to whether particular digital asset ‘tokens’ are likely to be a financial product. This is a short-hand expression – what we are in fact referring to is the bundle of rights, benefits, expectations and product features that are associated with a particular token as offered to the public.

Some of the rights and benefits from holding the tokens are enforceable, others are more in the nature of a statement about the intentions of the offeror, and others are more a consequence of the code used in the smart contracts associated with the digital asset. When we refer to the legal status of a ‘token’ it should generally be understood as a reference to the legal status of the overall arrangement that includes the token as offered to the public.

This means that a ‘token’ is not separated from its associated bundle of rights, benefits, expectations and features for the purpose of being traded on a digital asset or crypto platform. Generally, we understand that when someone trades a ‘token’ they are transferring the rights associated with that token, in the same way as trading shares or giving a gift card transfers the rights associated with those products.

With a product or service involving a digital asset, sometimes there is uncertainty about what part of the arrangement is the financial product. While this is an evolving area, some analogies can be drawn from the case law and the treatment of traditional products. For example:

• for a managed investment scheme (e.g. an exchange traded fund (ETF)) – the individual unit is the financial product, and
• for a company limited by shares – the individual share is the financial product.

How overseas digital asset categories translate to the Australian context  

Some international regulators have issued guidance on the application of their securities, payments and financial services laws to digital assets, and have defined the function of a range of digital assets (e.g. security tokens, utility tokens and exchange tokens). These categorisations do not necessarily translate to equivalent products in Australia.

It is important to always consider the particular rights and benefits of an individual digital asset in relation to current Australian law to determine whether it is regulated as a financial product or whether the services you provide are regulated as the provision of financial services in Australia.

The definition of a financial product in Australia is often broader than comparable concepts in other jurisdictions. Similarly, the definition of financial services in Australia can vary compared to other jurisdictions.

It is your responsibility to understand and comply with all relevant and applicable Australian laws in relation to the products and services you provide or propose to provide.

What is a financial service?

The Corporations Act outlines a range of ‘financial services’ that can be provided in relation to a financial product.

The following list of examples represents only the core of financial services and is not comprehensive:

• dealing in a financial product – this includes a range of conduct including applying for or acquiring, varying, disposing and underwriting. It also includes issuing a financial product and arranging
• providing financial product advice (general and personal advice)
• making a market for a financial product, and
• providing a custodial or depository service.

Persons are generally required to hold an AFS licence to carry on a financial services business in Australia.

Financial services involving digital assets

This section describes different ways that financial services may be provided in respect to digital assets or related products that are financial products.

When are you providing advice in relation to digital assets that are financial products?

A person may be providing advice if they recommend or state an opinion with the intention of influencing the consumers’ decision about the financial product. For example, by:

• making comparisons between two digital assets where at least one of them is a financial product, and/or
• making comparisons between a digital asset and a traditional financial product by giving advice about the relative merits of investing in certain digital assets versus certain shares: see Information Sheet 269 Discussing financial products and services online (INFO 269).

We have set minimum training standards for financial product advisers: see Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146).

Your financial product advisers are required to have specialist knowledge and training about the specific financial products they represent. When considering the digital nature of a financial product, the general principle is that its electronic design does not impact the advice as a financial product.

We recommend that advisers have a working knowledge of the technology underpinning digital assets that are financial products and related financial products. They should be able to explain the extent that the technology changes the risks or benefits that are specifically in the interest of consumers.  

When are you dealing in relation to digital assets that are financial products?

‘Dealing’ includes the acts of buying and selling (whether for yourself or on behalf of another person) and issuing (i.e. creating and making available) a financial product.

Dealing is the service provided by a person of buying and selling pre-existing digital assets from or to clients, which may consist of consumers or other businesses. Arranging for another person to deal in financial products is also a form of dealing. For example, a business that assists people with buying or selling digital assets that are financial products may itself be dealing in financial products (e.g. acting as a broker). However, subject to some exceptions, dealing on your own behalf is not a financial service.

Issuing is the part of dealing where a person or company supplies a digital asset that is a financial product, or a financial product related to digital assets.

Note: The use of the term ‘arranging’ in the context of the Corporations Act does not necessarily have the same meaning in other legislative contexts. See Regulatory Guide 36 Licensing: Financial product advice and dealing (RG 36).

When does a digital asset service involve market making?

A person generally makes a market when they regularly state prices at which they offer to buy or sell financial products on their own behalf, with others able to respond to those offers. This business model is common both for traditional financial products and digital assets. Where some or all of the digital assets involved are financial products, the market-making business will be providing a financial service.

When does a digital asset service involve custody?

A person provides a custodial or depository service and holds financial products or a beneficial interest in the financial product on trust for, or on behalf of, their clients. If this service is provided in relation to digital assets when some or all of them are financial products, the custodial service will be a financial service. The manner in which the assets are held, subject to the terms of the arrangement, is important in understanding if there is a financial service being offered.

Where a person controls the private keys related to an address on a public blockchain, they will likely be providing a custodial or depository service. Offering a ‘self-custody’ solution, or self-hosted wallet product, is unlikely to amount to providing a custodial or depository service.

See Regulatory Guide 133 Funds management and custodial services: Holding assets (RG 133) for more information on the obligations for custodians.

The obligations on custodial or depository service providers are principles-based and apply to custody of any financial product, regardless of its form. They are also flexible for the nature and scale of the business, including the balance between technological, business and personnel requirements. We have provided guidance on these obligations to reflect the different structures of holding digital assets for clients in RG 133.

Section G of RG 133 outlines the requirements of custodians to hold client assets. The regime allows for omnibus holding of client assets for certain types of financial products under certain conditions. Reflecting the structure of digital asset markets and systems, we have extended the omnibus holdings exemption to allow entities that provide custody of digital assets that are financial products to hold those digital assets in omnibus arrangements. Entities are still required to separate client assets from firm assets. Custodial or depository service providers also have specific financial requirements as set out in Regulatory Guide 166 AFS licensing: Financial requirements (RG 166). The Financial requirements section of this information sheet provides guidance on the net tangible assets (NTA) requirement relating to custodial or depository services, including guidance in relation to ‘incidental custody’ for the purposes of the NTA requirements. 

In addition, Section F of RG 133 provides good practice guidance for custodial or depository service providers and responsible entities of registered managed investment schemes that hold digital assets. 

Applying for an AFS licence for financial services involving digital assets

This section considers how the requirements for AFS licence applications apply to financial services involving digital assets that are financial products.

Entities are generally required to hold an AFS licence, or operate as an authorised representative of an AFS licensee, to carry on a financial services business in Australia. You need to have the appropriate authorisations before you undertake the services that require such a licence.

Regulatory Guide 1 Applying for and varying an AFS licence (RG 1) includes guidance on ASIC’s licensing assessment policy settings and what licence authorisations you may require. The range and mix of licences you will require will depend on:

• what type of financial products you are providing financial services for
• what financial services you are providing, and
• whether your clients are retail or wholesale clients.

Some entities may be providing a financial service in Australia but do not require a licence for that service due to exemptions from the Corporations Act. These can differ by product and service type. Please refer to the relevant regulatory guides for the specific financial product and service.

RG 1 and other regulatory guides also provide guidance on how to apply for your licence. This includes what types of documentation and information you will need to provide to demonstrate organisational competence to offer the financial services.

When engaging with RG 1, you will need to understand which financial product(s) you are applying to provide financial services for. In identifying these financial products, you will need to assess both the digital assets, and any associated arrangements you offer to customers. For example, if a digital asset or related product is a non-cash payment facility, you will select the ‘non-cash payment products’ product type, and the services that you are intending to provide for that product. We will also consider providing a tailored licence authorisation where the digital asset or related product is novel: see RG 1 at RG 1.65(k).

It is important to note that having an AFS licence does not authorise you to provide any and all financial products and financial services. Rather, you are limited to offering the financial products and financial services that are detailed by the authorisations on your licence. 

Where you are providing a financial service in relation to digital assets that are financial products, we may impose some specific additional or altered licence conditions and obligations. The extent of differences with the traditional financial products and services will depend on the product and service applied for.

Professional indemnity insurance

If you provide financial services to retail clients, you must have arrangements for compensating those clients. The primary way to comply with this obligation is to have professional indemnity insurance: see Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126).

Consistent with our general approach, where you show genuine attempts to obtain professional indemnity insurance but are unable to do so, alternative arrangements may be considered on a case-by-case basis, as long as the alternative arrangements provide a comparable level of protection: see RG 126 at RG 126.64.

Responsible managers

You must comply on an ongoing basis with the organisational competence obligation in section 912A(1)(e) of the Corporations Act, and must demonstrate compliance with this obligation in your licence application: see Regulatory Guide 105 AFS licensing: Organisational competence (RG 105).

We assess compliance with this obligation during the licensing process by evaluating the knowledge and skills of the nominated responsible managers. For example, responsible managers must have experience in the products and services offered, an understanding of the technology, and an understanding of the regulatory requirements of an AFS licensee. Compliance with this obligation will depend on the nature, scale and complexity of your business, including its size, the financial services and products provided, and the structure of the relevant roles to this obligation.

We may consider unregulated experience for the purposes of satisfying Option 5 of RG 105 for responsible managers: see, for example, Regulatory Guide 262 Crowd-sourced funding: Guide for intermediaries (RG 262). Any unregulated experience must still be of an acceptable level to satisfy ASIC that the responsible manager(s) has the appropriate knowledge and skills for their role.

Experience of a nominated responsible manager for the purposes of demonstrating organisational competence will be assessed on a case-by-case basis and in conjunction with the experience demonstrated by any other nominated responsible managers. 

The required number of responsible managers for digital assets will vary based on the nature, scale, and complexity of your business, and the experience mix and capacity of nominated responsible managers to perform relevant tasks.

As a transitional approach to compliance with the organisational competency obligation, we will assess on a case-by-case basis whether the combination of two or more people may meet the responsible managers requirement. This could involve one responsible manager overseeing the regulatory aspects of the business while the other oversees operational business decisions in relation to the digital assets. The second responsible manager may have unregulated digital asset experience. We will require the group of responsible managers as a whole, and the individual responsible managers for their roles, to demonstrate adequate capacity to fulfil their obligations for the entity in question.

This is a transitional approach. We expect the pool of responsible managers to broaden as more individuals obtain relevant mixes of knowledge, skills and experience in both regulation and digital assets. 

Financial requirements

AFS licensees are required to comply with the base level financial requirements: see RG 166. Additional requirements may apply (e.g. if you hold client money or property) and tailored financial requirements may apply, based on your licence authorisations. In certain circumstances additional financial requirements are imposed as NTAs, including when providing a custodial or depository service: see ASIC Corporations (Financial Requirements for Custodial or Depository Service Providers) Instrument 2023/648.

A provider of a custodial or depository service typically requires at least $10 million in NTA except where the service provider outsources this to a sub-custodian and/or when the custodial or depository service is ‘incidental’ (i.e. not the primary financial service) to the provision of other financial services. Where custody is ‘incidental’ the NTA obligation is $150,000, or where the service is incidental and you do not hold physical custody then the NTA obligation may be nil: see Table 15 in RG 166. 

Whether a custodial or depository service is ‘incidental’ depends on specific circumstances. For instance, we may consider your custody service to be ‘incidental’ for the purposes of being an ‘incidental provider’ under ASIC Instrument 2023/648 if providing custody is: 

• for the purpose of facilitating the dealing or market making of, or operating a market in a digital asset that is, a financial product (e.g. a derivative), and
• as an ancillary service you are not earning revenue from custody, or part of an arrangement that is a non-cash payment facility and no revenue is generated from the custody service (e.g. revenue is from transaction fees).

A service is unlikely to be ‘incidental’ if it is a primary financial service, such as a custodial wallet service, where fees are charged in relation to the assets held in the wallet (rather than fees for transactions or transfers of those digital assets). Some businesses may offer one or all of these different custodial arrangements across a mix of products and services.  

One component of the NTA requirement is that at least 50% of the required NTA must be held in cash or cash equivalents. We may consider relief on an individual basis where a digital assets business cannot obtain banking services to facilitate this. 

Doing financial services business in Australia 

Persons from outside Australia that wish to engage in a financial services business in Australia need to consider:

• whether you are ‘carrying on a financial services business’ in this jurisdiction, and are therefore required to be licensed and abide by the product disclosure requirements and design and distribution obligations, or
• have other obligations under legislation administered by ASIC: see Regulatory Guide 121 Doing financial services business in Australia (RG 121). 

Note: Where an overseas digital asset issuer is providing a financial service from outside Australia, without engaging in conduct that is intended to induce people in Australia, there is no requirement for the issuer to prepare a Product Disclosure Statement (PDS), subject to consideration of any anti-avoidance measures, or comply with the design and distribution obligations regime.

Are you complying with all relevant Australian laws on an ongoing basis?

Entities need to ensure they comply with all relevant Australian laws when offering digital assets. This includes ensuring that all the documents and information they provide to consumers, regardless of the media they use, comply with relevant laws including the Corporations Act, ASIC Act and Australian Consumer Law, as well as anti-money laundering and counter-terrorism financing (AML/CTF) and know-your-customer (KYC) obligations. 

Whether or not a financial product is involved, promoters must always ensure that the marketing of and disclosures about digital assets do not involve misleading or deceptive conduct or statements. Entities should seek professional advice (including legal advice) on all the facts and circumstances of the issue or sale of digital assets.

As the design or features of a digital asset can change over the course of the product development life cycle, entities are expected to seek professional advice and ensure ongoing compliance with the law.

What is misleading or deceptive conduct in relation to a digital asset?

Australian law prohibits misleading or deceptive conduct in trade or commerce. This applies regardless of whether or not the digital asset is a financial product. Australian laws and regulations that prohibit misleading or deceptive conduct may apply even if a digital asset is issued, traded or sold offshore. It is a serious breach of Australian law to engage in misleading or deceptive conduct.

Care should be taken to ensure that promotional communications about a digital asset do not mislead or deceive consumers and do not contain false information. When a person makes representations about fundraising for a project, but they are inconsistent with the rights and benefits in the related terms and conditions or offering materials, the person may be at risk of having made false or misleading statements. It is important to ensure that ongoing disclosures are kept up to date – failure to do so will increase the risk that the information provided about the digital asset could mislead or deceive consumers.

Digital assets that are financial products

For digital assets that are financial products, the ASIC Act and the Corporations Act include prohibitions against misleading or deceptive conduct.

Regulatory Guide 234 Advertising financial products and services (including credit): Good practice guidance (RG 234) contains guidance to help businesses comply with their legal obligations not to make false or misleading statements or engage in misleading or deceptive conduct.

Digital assets that are not financial products

For digital assets that are not financial products, the same prohibitions against misleading or deceptive conduct apply under Australian Consumer Law. The Australian Competition and Consumer Commission (ACCC)’s Advertising and selling guide provides guidance on how to ensure advertising complies with Australian Consumer Law.

Are your clients ‘retail’ investors?

The Corporations Act imposes additional requirements for entities that provide financial services to retail clients. Entities are expected to know who their investors are to justify a conclusion that exemptions under the Corporations Act for ‘wholesale’ or ‘sophisticated’ investors versus retail clients apply to their financial services. Where retail clients are involved, entities must apply for an AFS licence that specifically authorises providing financial services to retail clients.

Some important additional requirements are:

• additional disclosures through PDSs and financial services guides (FSGs)
• the design and distribution obligations
• internal and external dispute resolution arrangements, and
• compensation requirements.

There are also some additional requirements for specific types of financial products—for example, see Digital assets that are, or involve, interests in a managed investment scheme for responsible entities of registered managed investment schemes.

What is the link with crowd-sourced funding?

Digital assets are sometimes issued as a form of crowd funding for building blockchain, distributed ledger, and other products or services (including funds management).

Crowd funding by selling digital assets in an ICO is not the same as ‘crowd-sourced funding’ (CSF) regulated under the Corporations Act. Care should be taken to ensure the public is not misled about the application of the CSF laws to an ICO or digital assets issued in that process. There are specific laws for the CSF regime which reduce the regulatory requirements for public fundraising from retail investors while maintaining appropriate investor protection measures.

The laws require providers of CSF services to hold an AFS licence authorising them to provide this service. This is not an exhaustive discussion of all the relevant Australian laws that apply in relation to providing CSF. It is the responsibility of the entities involved to ensure they comply with all relevant Australian laws. For more information, go to Crowd-sourced funding on the ASIC website.

What are ASIC’s discretionary powers?

ASIC has discretionary powers to grant relief (i.e. by exemption or declaration) from certain legislative provisions. ASIC’s approach to granting relief is outlined in Regulatory Guide 51 Applications for relief (RG 51).

Relief can be individual or for a class of persons or products.

Generally, we do not have power to grant retrospective relief. To the extent that we can give relief from future consequences of past conduct, our policy is not to do so.

In assessing a relief application, we attempt to weigh the commercial benefit and any net regulatory benefit or detriment that would flow from granting the relief sought on the conditions proposed.

You can also ask us to grant a no-action letter. This is a letter in which we state to a particular person that we do not intend to take regulatory action over a particular state of affairs or particular conduct. It is not, however, a guarantee that we will not take action in the future, nor is it intended to affect the rights of third parties to take action in relation to any contravention. It is not legal advice and may be withdrawn at any time. See Regulatory Guide 108 No-action letters (RG 108).

Additional guidance for complying with your ongoing obligations as an AFS licensee

This section explores key issues relating to AFS licensee obligations. The topics covered in this section are not exhaustive and it is the responsibility of AFS licensees to be aware of and comply with all the obligations under the Corporations Act.

Client money

Holding client money is subject to the client money regime in Part 7.8 of the Corporations Act. While having a focus on client money in OTC derivatives, Regulatory Guide 212 Client money relating to dealing in OTC derivatives (RG 212) provides a summary of what is and is not client money and outlines when holding client money is regulated under Chapter 7 of the Corporations Act: see RG 212 at RG 212.2–RG 212.4. 

You must hold client money to which the client money regime applies in a separate trust account with an Australian ADI. This separation of client funds helps protect retail investors against misuse or loss. 

If you show genuine attempts to meet the client money obligations but have been unable to do so (e.g. where you are unable to source a trust account from an Australian ADI or where you are unable to immediately distinguish between whether client funds are related to financial or non-financial products), relief may be considered on a case-by-case basis. If you can demonstrate that any alternative arrangement will provide equivalent customer protections to the client money regime, relief may be considered: see RG 51. Alternative arrangements should focus on, but not be limited to, identifying and segregating client money quickly, keeping client money separate from ‘house’ money, implementing effective controls to protect client money, maintaining sufficiently detailed and accurate financial records, and negligible default and credit risk consistent with a trust account at an ADI. 

In certain circumstances, such as when the digital asset is an OTC derivative, the ASIC Client Money Reporting Rules 2017  may apply. If you hold ‘reportable client money’ you must comply with a number of record-keeping, reconciliation and reporting requirements (see Information Sheet 226 Complying with the ASIC Client Money Reporting Rules 2017 (INFO 226)), noting there are additional reporting requirements when providing OTC derivatives (see RG 212). 

Conflicts of interest

You are responsible for ensuring you implement adequate arrangements for the management of conflicts of interest: see section 912A(1)(aa) of the Corporations Act and Regulatory Guide 181 Licensing: Managing conflicts of interest (RG 181). What constitutes adequate arrangements will depend on the nature, scale and complexity of your business. In addition, you are required to disclose conflicts in various documents including the PDS and FSG. 

Conflicts of interest may be more prevalent in certain digital asset businesses due to their vertically integrated structures. For instance, a digital asset business might run its own blockchain, issue its own token(s), provide brokerage services, provide custody of assets, trade on its own account, operate a platform for trading digital assets (including as the market maker, market operator and settlement system), provide lending services (including asset lending), and offer related products and services (e.g. a stand-alone digital asset wallet, or separate derivatives). These activities could be conducted by the same entity, or by related entities within the same corporate group. Such structures can introduce perceived, potential and actual conflicts that should be considered by the licensee including conflicts associated with proprietary trading, self-listing and dealing in a token created by the digital asset business. In traditional financial services many of these functions are typically conducted by separate entities. 

To manage the risk of conflicts of interest, you could consider: 

• nominating a person or persons to take responsibility for ensuring conflicts of interest management arrangements are implemented, reviewed and updated
• having robust systems to not preference related party digital assets
• whether the risk can be reduced by separating each business unit into individual legal entities (platform operator, market maker, principal trader) and addressed if necessary, and
• having appropriate processes in place to promote transparency of transactions such as an OTC counterparty or exchange that a transaction was directed to. We view it as good practice to disclose to customers the method and exact timing of execution and have controls in place to prevent, or deal with, incentive payments (e.g. shelf space fees, commissions, listing fees, payment for order flow). 

Disclosure

Issuers of digital assets that are financial products may be subject to the product disclosure requirements in Part 7.9 of the Corporations Act. Regulatory Guide 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) (RG 168) gives guidance on preparing disclosure documents and provides good disclosure principles to help consumers make better informed decisions about financial products. Also see Regulatory Guide 175 AFS licensing: Financial product advisers—Conduct and disclosure (RG 175) for personal or general advice obligations. 

Design and distribution obligations

The design and distribution obligations are intended to help retail consumers obtain appropriate financial products. They apply in circumstances involving retail product distribution conduct. Issuers and distributors that are captured by the design and distribution obligations are required to have a consumer-centric approach to the design and distribution of financial products, including digital assets that are financial products: see Regulatory Guide 274 Product design and distribution obligations (RG 274). In particular:

• issuers must design financial products that are likely to be consistent with the likely objectives, financial situation and needs of the consumers for whom they are intended – this includes developing a target market determination (TMD)
• issuers and distributors must take ‘reasonable steps’ that are reasonably likely to result in financial products reaching retail consumers in the target market defined by the issuer, and
• issuers must monitor consumer outcomes and review products to ensure that retail consumers are receiving products that are likely to be consistent with their likely objectives, financial situation and needs.

Where the design and distribution obligations apply, issuers of a digital asset that is a financial product have an obligation to prepare a TMD and have distribution conditions that make it reasonable to conclude that it is likely that retail consumers who acquire the financial product will be in the target market. While an issuer may not retain direct control over assets issued on a blockchain network, it must take reasonable steps that will, or are reasonably likely to, result in a distribution being consistent with the TMD. You must notify ASIC of significant dealings in the product that are not consistent with the TMD within 10 business days of becoming aware of the inconsistency.

You can be both an issuer and distributor, such as a platform that sells its own tokens and operates a trading platform. Distributors must maintain complete and accurate distribution records. 

Where the design and distribution obligations apply, distributors of digital assets that are financial products have an obligation to take reasonable steps to distribute a financial product in line with an issuer’s TMD.

When a digital asset is a financial product but the issue or sale of the product does not require a PDS or a TMD (for example, if the offers for the issue or sale of the product are not received in this jurisdiction and the issues are not made in this jurisdiction) distributors are not subject to the design and distribution obligations (noting other obligations may apply to the distribution).

Dispute resolution

If you are providing financial services to retail clients, you must have and comply with an internal dispute resolution (IDR) procedure that meets the standards or requirements made or approved by ASIC (see Regulatory Guide 271 Internal dispute resolution (RG 271)) and be a member of the Australian Financial Complaints Authority (AFCA) (see Regulatory Guide 267 Oversight of the Australian Financial Complaints Authority (RG 267).

Good practice guidance for AFS licensees providing services for digital assets that are not financial products

We recognise that AFS licensees may be providing services in relation to digital assets that may not be financial products. In such cases, you may consider:

• managing conflicts of interest in relation to non-financial digital assets in line with RG 181
• providing custody of non-financial digital assets with consideration to the RG 133 operational requirements, and
• offering the same internal and external dispute resolution process across your entire business.

This good practice recommendation may help you to mitigate some of the risks of not complying with your AFS licence obligations as a result of misclassifying a financial product digital asset as a non-financial product digital asset, uplift consumer protections, and reduce the burden of running separate processes for non-financial and financial product digital assets.

What is a financial market?

A financial market is a facility through which offers or invitations to acquire or dispose of financial products are regularly made or accepted. Anyone who operates a financial market in Australia must obtain an Australian market licence to do so or otherwise be exempted from the requirement to hold an Australian market licence: see Regulatory Guide 172 Financial markets: Domestic and overseas operators (RG 172).

Where a digital asset is a financial product, then any platform that enables consumers or other persons to make or accept offers to buy (or be issued) or sell these digital assets may involve the operation of a financial market. You need just one financial product trading on your market to mean you are operating a financial market. It is important for you to carefully consider what products you allow for trading.

Depending on the conduct involved, you may not be operating a market – for example, if you are acting as a market maker or broker (i.e. making or accepting offers to buy or sell digital assets that are financial products on your own behalf, or on behalf of one party to the transaction). A person undertaking this type of conduct, for example, would typically be required to hold an AFS licence rather than a market licence: see section 767A(2)(a) of the Corporations Act, RG 172 and Part B.

To operate a financial market in Australia, the platform operator will need to hold an Australian market licence unless covered by an exemption: see, for example, Information Sheet 217 Licensing relief for low volume financial markets (INFO 217). Platform operators must not allow financial products to be traded on their platform without having the appropriate licence as this may amount to a significant breach of the law.

If you operate an overseas platform that does not have an Australian market licence, you must ensure that it does not operate as a financial market in Australia (unless you are exempted from the requirement to hold an Australian market licence). This may require you to take steps to prevent Australian clients from accessing financial products on your platform.

These steps include (but are not limited to):

• removing references and links
• placing additional warnings and disclosures on the relevant webpages and apps
• screening out Australian clients as part of your KYC processes (e.g. whitelisting wallets), and
• introducing geographically based IP restrictions (geo-blocking).

For more information about financial markets, go to Markets on our website.

What is a CS facility?

A CS facility in the Corporations Act is defined as a facility that provides a regular mechanism for the parties to transactions relating to financial products to meet obligations to each other that arise from entering into a transaction, where the obligations are of a kind prescribed by the regulations. Regulatory Guide 211 Clearing and settlement facilities: Australian and overseas operators (RG 211) provides details on when you need a CS facility licence or exemption. CS facilities include central counterparties and settlement systems.

ASIC and the RBA are co-regulators of CS facilities in Australia and have separate, but complementary, responsibilities for licensing and supervising licenced CS facilities.

Depending on how transactions in digital assets that are financial products are cleared and/or settled, you may also be operating a CS facility and require a CS facility licence: see RG 211.

This section provides guidance to issuers of investment products that provide retail investors with exposure to digital assets.

There are many different types of investment vehicles available to retail investors in Australia. The types commonly accessed by investors include:

• exchange traded products (ETPs), such as exchange traded funds (ETFs) and structured products (SPs)
• listed investment companies (LICs)
• listed investment trusts (LITs), and
• unlisted investment funds.

You must be mindful that there are specific legal obligations that apply to the different kinds of investment products you may be operating and offering. For example, ETFs, LITs and unlisted investment funds are managed investment schemes. SPs are generally securities or derivatives. LICs are public companies. Each of these are regulated by ASIC under the Corporations Act, but the regulatory obligations can differ.

In addition, except for unlisted investment funds, these products are typically traded on licensed Australian financial markets. Market operators play an important gatekeeper role in assessing the suitability of products that are admitted to their markets. If you intend to admit your product to a market, the respective market operator will have requirements you must meet.

The discussion below provides information on good practices for different types of investment products that provide exposure to digital assets. Issuers of ETPs that reference digital assets should also refer to the additional good practices specific to digital asset ETPs set out in Information Sheet 230 Exchange traded products: Admission guidelines (INFO 230).

While this guidance is primarily directed to entities providing digital asset investment products and services to retail investors, it is also good practice for providers of products to wholesale investors to apply this guidance, with a focus on custody and risk management.

Managed investment schemes

Responsible entities (REs) and retail managed investment schemes are regulated under Chapter 5C of the Corporations Act. REs play a crucial role in ensuring the health of, and confidence in, the financial system. They are entrusted with the funds of their investors and must comply with their legal obligations as REs, including to act in the best interests of members of the scheme.

There are certain key matters that REs must consider when investing the funds of their investors into digital assets, particularly in relation to custody, risk management and disclosure. These key matters are relevant, whether or not the digital assets are financial products.

Custody

The RE of a registered scheme must hold scheme property on trust for members: see section 601FC(2) of the Corporations Act. Further obligations in relation to custody are set out in ASIC Corporations (Asset Holding Standards for Responsible Entities) Instrument 2024/16. Regulatory guidance in relation to these obligations is set out in RG 133.

Asset holders also need to comply with financial requirements set out in ASIC Corporations (Financial Requirements for Responsible Entities, IDPS Operators and Corporate Directors of Retail CCIVs) Instrument 2023/647. Regulatory guidance in relation to these obligations is set out in RG 166. Generally, this will mean that the RE, or its custodian engaged to hold the scheme property, will be required to hold minimum NTA of A$10 million.

In meeting these minimum requirements when dealing with digital assets, we have provided good practice in RG 133, Part F.

Risk management

An RE, as an AFS licensee, is required to do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly: see section 912A(1)(a) of the Corporations Act. Further, under section 912A(1)(h), an AFS licensee is required to have adequate risk management systems. Regulatory guidance in relation to these obligations is set out in Regulatory Guide 259 Risk management systems of fund operators (RG 259).

In meeting these minimum requirements in relation to digital assets, we consider it good practice for REs to carefully consider the digital asset exchanges used by them or their service providers to access digital assets. In particular:

• the RE should be satisfied, based on reasonable due diligence, that any digital asset exchange it relies on:
  • is a digital currency exchange (DCE) provider registered with AUSTRAC, if required, or is regulated by one or more laws of a foreign country giving effect to the Financial Action Task Force recommendations relating to customer due diligence and record-keeping, and
  • implements risk-based AML/CTF systems and controls that are supervised or monitored by a body empowered by law to supervise and enforce the customer due diligence and record-keeping obligations, and
• the RE should ensure that authorised participants, market makers and other service providers that trade digital assets in connection with the product do so on digital asset exchanges that meet the same standard as above.

The AML/CTF obligations, among other things, require entities to have customer identification procedures and aim to reduce the risk of digital assets being used to support criminal activity.

Research also suggests that market integrity issues are more prevalent on digital asset markets with lower levels of regulation, compliance and transparency.

The RE is responsible for ensuring its risk management systems appropriately manage all other risks posed by digital assets. Among other things, this could include implementing or applying relevant standards published by Australian and international organisations as they develop.

Disclosure

Part 7.9 of the Corporations Act sets out the obligations that apply to an RE as an issuer of a PDS. Further guidance about disclosure is set out in RG 168 and issuers should refer to the ‘Good disclosure principles’ outlined in Section C.

Relevantly, section 1013D of the Corporations Act requires that a PDS must include information – about any significant risks associated with holding the product – that a retail client would reasonably require to make a decision whether to buy the financial product.

In the context of investment products that invest in, or provide exposure to, certain digital assets, we consider there must be sufficient information about the characteristics and risks of those digital assets in the PDS. There must also be sufficient information about how the product is intended to operate and how it is expected to generate a return for investors.

Types of matters that may be relevant in meeting these minimum requirements may include:

• characteristics of digital assets
  • the technologies that underpin digital assets, such as blockchains, distributed ledger technology, cryptography and others
  • how digital assets are created, transferred and destroyed
  • how digital assets are valued and traded, including whether the digital assets will be ‘staked’, and
  • how digital assets are held in custody.
• risks of digital assets
  • market risk – historically, digital assets have demonstrated that their investment performance can be highly volatile and there is a risk they could have little to no value in the future
  • pricing risk – it may be difficult to value some digital assets accurately and reliably for reasons including the nature of their trading, susceptibility to manipulation, and a lack of identifiable fundamentals. Some digital assets may be purely speculative assets
  • immutability – most digital assets are built on immutable blockchains, meaning that an incorrect or unauthorised transfer cannot be easily reversed and can only be undone by the recipient agreeing to return the digital assets in a separate transaction
  • political, regulatory and legal risk – government and/or regulatory action may affect the value of digital assets held by the scheme
  • custody risk – the private keys may be lost or compromised, resulting in digital assets being inaccessible or accessed by unknown third parties without authorisation
  • cyber risk – the nature of digital assets may mean they are more susceptible to cyber risks than other asset classes, and
  • environmental impact – to the extent that some digital assets have a large environmental impact, this may raise other risks, such as increased regulation or negative market sentiment, which could affect the value of digital assets held by the scheme.

Note: For the avoidance of doubt, this list does not represent mandatory matters for disclosure and should only be regarded as illustrating the types of matters that may be relevant to REs when complying with their disclosure obligations. REs must determine what is appropriate disclosure in the context of the characteristics, operations and risks of their product.

Licensing of scheme operators and registration of schemes

Operators of wholesale schemes that hold digital assets will generally need to hold an AFS licence or be exempt from the requirement to hold a licence. Operators of retail schemes that hold digital assets will need to hold an AFS licence to ‘operate a registered scheme’ where the investors in that scheme are retail.

For general information about applying for an AFS licence, see RG 1 which provides an overview of the application process and information on supporting documents.

We expect that applicants proposing to operate registered schemes that hold digital assets (whether the scheme holds one or more digital assets) will initially apply for ‘named scheme’ authorisation. This authorises the licensee to operate only the specific digital asset registered scheme(s) named on the licence.

Consistent with RG 105, we expect applicants to operate two named digital asset registered schemes for at least two years before we will consider granting them a broader ‘kind scheme’ authorisation for digital assets. The ‘kind scheme’ authorisation allows the licensee to operate multiple digital asset schemes without needing to vary the licence with each new scheme.

When applying for these authorisations, the applicant is required to select what kind(s) of assets the scheme will hold. For registered managed investment schemes that will hold digital assets, the applicant should select:

• for digital assets that are not financial products, the ‘crypto-asset’ asset kind, or
• for digital assets that are also financial products, the asset kind which corresponds to the digital asset class of financial product – for example, the ‘financial assets’ or ‘derivatives’ asset kinds.

To establish the ‘crypto-asset’ asset kind to administer our licensing functions we have defined ‘crypto-asset’ as ‘a digital representation of value or rights (including rights to property), the ownership of which is evidenced cryptographically and that is held and transferred electronically by:

• a type of distributed ledger technology, or
• another distributed cryptographically verifiable data structure.’

Note 1: This definition is deliberately broad to capture the range of assets that could be held by a managed investment scheme. Without limitation, it is intended to encapsulate the full range of ‘digital assets’, ‘crypto-assets’, ‘coins,’ ‘stablecoins’ and ‘tokens’, as those terms are used by the industry.

Note 2: This definition helps us to administer the AFS licensing regime for managed investment schemes and should not be taken as a definition of digital assets or crypto-assets for other purposes.

Note 3: For the purposes of the AFS licensing above we will retain the term ‘crypto-asset’, even though INFO 225 is now using the broader term ‘digital assets’.

In assessing AFS licence applications for the authorisation to operate registered managed investment schemes that hold ’crypto-assets’, for both ‘named scheme’ and ‘kind scheme’ authorisations, whether the digital assets are financial products or not, some of the key matters we will consider in detail are:

• whether the nominated responsible managers can demonstrate both the ‘operate scheme’ and ‘assets under management’ elements of the organisational competence standards set out in RG 105
• the extent to which the applicant can meet the good practices outlined above for the products they will operate – particularly in relation to custody and risk management, and
• whether the applicant has appropriate human, financial and technological resources.

We also note that:

• we will assess the application under relevant policy and, in relation to digital assets that are also financial products, consider what applies to financial products of that type generally
• applications that relate to digital assets are more likely to be novel applications and our experience to date indicates that assessment of those applications may take more time, and
• we will work with businesses to identify the issues to be addressed in the application and will issue additional guidance if we think that doing so may be helpful to industry.

After the operator is licensed, the digital asset scheme(s) it will offer to investors may need to be registered as a managed investment scheme.

For more information about scheme registration, refer to How to register a managed investment scheme on the ASIC website.

Listed investment companies

LICs are public companies incorporated under the Corporations Act and are subject to the law relating to such companies, including Chapter 2D (directors’ duties), Chapter 2M (financial reporting) and section 674 (continuous disclosure). As listed entities, they are also subject to the rules of the market they are listed on. The LIC will appoint an investment manager with an AFS licence but does not generally have its own AFS licence.

We expect LICs that provide investors with a material exposure to digital assets to follow the same good practices for custody, risk management and disclosure as registered managed investment schemes.

We expect market operators to develop rules for LICs that invest a material portion of investors’ funds in digital assets so that there is a level playing field between them and digital asset ETPs, particularly in relation to permissible underlying digital assets and pricing frameworks: see INFO 230 for further information.

Structured products

SPs are generally classified as securities or derivatives, and the precise legal obligations of an SP issuer will depend on the type of financial product it issues.

We expect SPs that offer investors exposure to digital assets to follow the same good practices for custody, risk management and disclosure as registered managed investment schemes. As SPs are a subset of ETPs, these products will also be subject to market operator rule frameworks as they apply to ETPs and our expectations for such products: see INFO 230 for further information.

 

Entities that have specific requests or questions about a digital asset solution, or in relation to distributed ledger technology, tokenisation or decentralised finance may contact our Innovation Hub or their existing ASIC contact. The Innovation Hub provides tailored guidance to innovative businesses on how to access information and services relevant to them through the ASIC website.

For all inquiries, we strongly encourage entities to carefully consider their proposal and seek professional advice (including legal advice).

We do not provide any advice, assessment or approval of an entity’s compliance with the law, including in relation to the business model adopted.

Related information

• Our role and the Laws we administer
• AFS licensees
• Fund operators
• Market structure
• Financial services
• Managed funds
• Markets
• ASIC’s Innovation Hub
• Crypto assets – ASIC’s Moneysmart website

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.