“Crypto isn’t useful for anything much. This is true (though the usual suspects won’t agree), but really isn’t the same as arguing that it will not become useful. The future can take a long time.”
More on risks, rewards and regulation
“Crypto-assets have unique characteristics and risks that must be considered by product issuers and market operators in meeting their existing regulatory obligations. The good practices we published provide practical examples of how these obligations may be met, in a way that maintains investor protections and Australia’s fair, orderly and transparent markets.”
— ASIC Commissioner Cathie Armour
We’ve addressed this topic in previous posts, including “An adviser’s guide to cryptocurrencies” and others broader implications. Despite, or perhaps because of its volatility, consumers, advisers and compliance people are still showing enormous interest in cryptocurrencies (as an alternative or speculative investment).
Where we once anticipated regulation, ASIC has stepped in to provide much needed clarity.
We’ve always been interested in cryptocurrencies, but don’t want advisers to get so distracted by projections and volatility that they lose sight of the broader issues of disruption, digitalisation and disjointed regulation.
ASIC on crypto-assets
“Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time. Don’t put in more money than you can afford to lose. If you’re trying to figure out where to store your life savings, traditional assets are still your safest bet.”
— Ethereum founder, Vitalik Buterin
In October 2021, ASIC issued Information sheet 225 and 21-285MR to clarify participants’ obligations under the applicable laws (Corporations Act, Australia Consumer Law and ASIC Act) for those people either involved with crypto-assets or considering raising funds through an initial coin offering (ICO). Although they prudently avoid impinging on the other regulators who oversee crypto-assets – such AUSTRAC and the ATO they provide a particularly useful guide.
We’ll highlight the parts that interest us, but we recommend that you read the full Information Sheet (which is nowhere near as depressing as other ASIC positions).
- The Corporations Act is likely to apply to a crypto-asset or an ICO that involves a financial product such as a managed investment scheme, security, derivative or non-cash payment (NCP) facility; some crypto-assets and many ICOs may be, or involve, interests in a managed investment scheme.
- Issuers (and their advisers) need to consider all the rights and features of the proposed crypto-asset, as well as the way in which it will be offered. This analysis is critical to determining whether the crypto-asset is a financial product or involves a financial product. The conclusions of an analysis of the rights and features of the asset is more important than how it is named and marketed (e.g. as an ICO).
- Australian law prohibits misleading or deceptive conduct in a range of circumstances, including in trade or commerce, in connection with financial services, and in relation to a financial product. Australian laws and regulations that prohibit misleading or deceptive conduct may apply even if an interest in a crypto-asset or an ICO is issued, traded or sold offshore. It is a serious breach of Australian law to engage in misleading or deceptive conduct.
SMSF and crypto-assets
On 17 January 2022, ASIC alerted the industry that it had noticed an increase in marketing recommending Australians switch to self-managed superannuation funds (SMSFs) so they can invest in a ‘high return’ portfolio. This is, as we’re sure you’re aware, hardly a new trend but it was prevalent enough for ASIC to remind those SMSF trustees that are being targeted to invest in crypto-assets (or cryptocurrencies) that Crypto-assets are a high risk and speculative investment and Trustees should seek advice from a licensed financial adviser before acting on this ‘opportunity’.
ASIC also took the opportunity to remind Trustees that any crypto-asset investment needed to be permitted under the fund’s trust deed and also be in accordance with the fund’s investment strategy (addressing goals, diversification, the risks of inadequate diversification, liquidity and solvency) .
Given the decentralised nature of crypto-assets, the reminder that the Trustee must also be able to demonstrate that the fund owns the asset, was a prudent reminder.