Speaking at a Tech Council of Australia event last week, Liberal Senator Andrew Bragg criticised the “sinister” and “anti-competitive” behaviour of many Australian banks regarding crypto investments.
Bragg was referring to the practice of “debanking”, where a financial institution ceases providing banking services to customers. In this case, Bragg said banks were “dressing up debanking as a regulatory necessity” due to concerns around crypto investments, particularly as they relate to banks’ anti-money laundering and counter-terrorism financing (AML/CFT) obligations.
Beyond the “debilitating” effects of debanking on individual customers, Bragg said, the practice has a broader impact on Australia’s status as a “crypto hub”. And while there are signs that this is changing – just this month, CBA became Australia’s first bank to offer crypto trading services – there remains something of a regulatory blind spot in Australia where crypto is concerned.
Legitimising crypto
The final report issued by the Senate Select Committee on Australia as a Technology and Financial Centre, which Bragg chaired, aims to address this via a range of recommendations. These include establishing a market licensing regime for digital currency exchanges, creating a custody regime for digital assets, reviewing AML/CTF rules and conducting a “token mapping exercise” to determine “the best way to characterise the various types of digital asset tokens in Australia.”
In addition to strengthening Australia’s “crypto hub” credentials, these changes would represent a step towards legitimising cryptocurrencies in Australian financial services – which, in turn, would make it much easier for advisers to talk about crypto with their clients.
Per results from a survey of our community from earlier this year, over half (52%) of participants said they had clients who have suggested crypto investments based on what they’d heard online. And the above Senate report suggests that as many as 25% of Australians hold or have held some form of crypto investment.
The advice challenge
Despite this, there are some significant barriers in front of advisers looking to assist their clients in navigating this space.
Beyond the issues Bragg’s report is designed to address, it isn’t straightforward when and how the Corporations Act applies to a given crypto asset. ASIC’s guidance on the matter suggests that “some crypto assets and many [initial coin offerings] may be, or involve, interests in a managed investment scheme,” but without a clearer consensus understanding of which crypto assets constitute financial products, providing advice on these investments remains a risky endeavour.
Furthermore, Bragg’s report quotes ASIC as saying that the “rights and features of each crypto-asset can raise different considerations for consumers, product issuers, and regulators.” ASIC also says that crypto assets are considered speculative, “with volatile prices and minimal to no regulatory oversight.” Taken in concert with advisers’ obligations under the best interests duty and the Code of Ethics, and it’s easy to see why the advice sector might be wary about discussing crypto.
The boundaries of advice
It’s a double-sided problem: on the one hand, you have the rigid boundaries in which advisers are required to operate – boundaries that, as Clime Investment Management CEO Annick Donat argued last week, are largely defined by financial product parameters rather than the services advisers actually provide to their clients. And on the other hand, you have a regulatory landscape that hasn’t yet caught up with the language and characteristics of an asset class that is undeniably popular with many Australian investors.
While crypto is steadily entering the Australian mainstream, as evidenced by the CBA offering mentioned above, both sides of this equation will need to be addressed before advisers can comfortably provide advice on these types of investments.
Given the “volatile prices and minimal to no regulatory oversight” ASIC suggests investors are exposed to when dealing in crypto, it seems like a space where advice is sorely needed.
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