By Aaron M. Lane -
Snapshot
- Despite several recent high-profile failures, digital assets have made a global comeback and Australia still does not have a bespoke licensing framework for regulating them.
- While policymakers dawdle, ASIC have sought to squeeze what they can into the existing Australian Financial Services Licence regime in several test cases ‘at the regulatory perimeter’.
- This article explores the recent history of digital asset regulation in Australia, analyses ASIC’s recent test litigation and unpacks what practitioners can learn from them.
Licensing can serve critical functions in financial markets. If well designed and appropriately enforced, licensing regimes provide a level of protection to consumers against the risks inherent in relying on intermediaries to manage assets, execute transactions or provide advice. By imposing minimum standards on market participants, licensing can reduce the likelihood of insolvency, fraudulent conduct, conflicted dealings and poor quality advice. By imposing disclosure requirements, licensing can also improve transparency, enabling consumers to make more informed decisions and be aware of the risks and characteristics of financial products and services.
In digital asset markets, consumers face intermediary risks familiar to traditional financial markets. But those risks are magnified by the prevailing business model of digital asset exchanges which tend to combine asset custody, brokerage and trading within a single business structure. Recent failures – such as the collapse of FTX, Blockchain Global’s ACX.io and MyCryptoWallet – have resulted in losses for Australian consumers, brought the vulnerabilities of ineffective governance into focus and, in FTX’s case, exposed fraudulent conduct. There is also the ever-present cyber danger of exchanges being hacked and consumer assets stolen, to say nothing about unscrupulous influencers promoting speculative crypto assets or criminal enterprises conducting wide-scale scams.
