The Australian Securities and Investments Commission (ASIC) is making moves that have the crypto news world excited. The reason is that the organisation recently proposed a prosecution “safe haven” for start-up cryptocurrency exchanges and firms promoting the investment in digital assets.
There has been a larger push in Australia to implement more stringent regulations as it relates to cryptocurrencies. There is a lot of ground to cover, so let’s look into the moves that ASIC is making and why they can be potentially impactful for investors, exchanges, and financial services businesses.
Expansion of What is Considered “Financial Services”
An integral part of the drafted guidelines created by ASIC is that there are exemptions. The aforementioned safe harbour would only be applicable to start-ups that are applying for a financial licence quickly. Moreover, those entities that own Ethereum, Bitcoin, and other cryptocurrency assets that are similar to a commodity wouldn’t fall under the proposed rules.
That said, ASIC’s proposal is substantial. It would entail a major expansion of what the group considers a “financial service” to be while looking at them within a much broader crypto sector. This includes popular staking services that pay investors for pledging holdings in order to secure the blockchain, as well as coins pegged to fiat currency.
ASIC stated that these rule changes come in response to growing demand for improved clarity surrounding crypto rules. This is especially true as cryptocurrencies and digital assets become more mainstream, maturing as an investment class.
That’s not even mentioning the impact that the re-election of Donald Trump has had in the United States. He has been pro-crypto in statements, promising to make his administration as crypto-friendly as possible while also being against the regulation of their promotion and use.
The proposed updates came in the form of Information Paper 225 (more on that below). ASIC has slowly worked to increase crypto asset oversight, though they aren’t necessarily governed by market laws or corporations, which makes them something of a grey space.
Information Paper 225
In order to provide additional clarification on current regulations, ASIC provided a list of its updates through Information Paper 225, or INFO 225. This paper even includes 13 practical examples of these financial product definitions and how they would apply to digital assets and any related products.
Per ASIC Commissioner Alan Kirkland, “We want to promote the growth of responsible financial innovation while ensuring consumer protection. A well-regulated financial system benefits everyone in the community, as it supports consumer confidence and market integrity and facilitates competition and innovation.
The paper is seeking feedback as it relates to the guidance in INFO 225, including the cited worked examples. It also seeks feedback on the existing licensing process for Australian Financial Services (AFS), as well as ASIC guidance and any standard conditions, as they relate to digital asset businesses.
On top of that, ASIC is looking for feedback on practical licensing issues as they relate to stablecoins and wrapped tokens. Current issues come in the form of a potential transition to a proposed digital asset platform from the Australian government.
Finally, ASIC is seeking feedback regarding a potential class ‘no action’ position relating to digital asset businesses that are in the process of applying for an AFS licence, a Clearing and Settlement Facility licence, or an Australian Markets Licence.
Meme Coins to Fall Outside Regulation
A major part of ASIC’s guidance involves a series of worked examples that show how the regulator plans to assess a number of crypto offerings.
For example, a token that is linked directly to the price of gold could be considered as a managed investment scheme. Tokenised bonds, however, are more likely to fall under debentures, while contracts for difference over digital assets will fall under the consideration of derivatives. The only consistency here is that each of them will require licensing.
All that said, meme coins fall outside of proposed ASIC regulations. This is because there isn’t enough connection between any capital gain and the uses of initial funds.
Overall, any digital currency exchange will require an Australian Financial Services License (AFSL). These licenses come with quite strict obligations requiring these entities to act honestly and fairly. Moreover, a market licence could be required if these platforms will enable the trading of financial products.
ASIC Commissioner Alan Kirkland spoke recently to The Australian Financial Review, saying, “This is a significant step-up in the level of regulatory guidance we are giving, and the protections available to consumers. This is something the industry has asked for, and there is a significant number of businesses in Australia that will need to be licensed as a result of these clarifications, which is a reflection of the current law, as ASIC interprets it, considering legal cases and the way products have evolved.”
Treatment of Stablecoins
Another key focus of ASIC is giving further consideration to the overall treatment of stablecoins. In examples provided through INFO 225, a stablecoin could be deemed as a non-cash payment facility, which would require a licence.
This latest push to require licensing for a number of digital assets comes in the wake of promoters receiving legal advice that did not fall within the currently existing set of rules. Because of that, ASIC has had to act, launching legal action and ultimately testing the extent of its governing powers.
In an important Federal Court case in February, the court found that Block Earner – a company offering fixed-yield crypto products – should have been registered and listed as a managed investment scheme. The court later found that Finder Wallet didn’t need a licence because it did not contravene financial services obligations.
For now, the water is much murkier in terms of stablecoins. With further elaboration and greater regulatory oversight, the path forward will become much clearer for investors, exchanges, and advisors.
The Need for Effective Crypto Regulation
At the heart of the discussion is the need for more consistent, effective crypto legislation. One of the things that deters potential investors is financial crime within the crypto space. Given the decentralised nature of crypto, it makes sense that potential investors would be sceptical of dealing with anonymous entities.
For that reason, more stringent crypto regulation is required. Regulations and laws should not merely focus on the control or restriction of cryptocurrencies but on preventing potentially illicit activities like fraud, financing of terrorism, and money laundering. With effective regulations, policymakers are more capable of creating effective, sustainable, and more targeted policies.
With greater transparency, it is believed that further regulation can work for all parties. Given the confusion of some relating to the underlying blockchain technology, improved transparency will allow for smoother governing of the broad framework of legislation in place.
The cryptocurrency marketplace is expanding all the time. Previously speculative investors are now getting involved, only furthering the need for stronger, more stringent legislation. For that reason, this latest push by ASIC is more critical than can be properly explained.
