Navigating the Regulatory Trilemma: ASIC Chair calls for strong crypto enforcement
Earlier this week at the AFR Crypto Summit, ASIC Chair
The decline of
Trust in Crypto
As
This, I will argue, makes a clear case for strong regulation supported by effective enforcement.
Balancing Regulation and Innovation
One of the most significant challenges in the crypto space is finding the right balance between regulation and innovation.
Ultimately, the challenge for regulation is to resolve the tension arising from not discouraging financial innovation while also seeking to provide clear rules and maintaining market integrity.
The careful balancing of these three concepts (i.e. fostering innovation, protecting consumers, and maintaining market integrity) has been referred to as the "regulatory trilemma", which
When it comes to the trilemma,
Consumer Protection
According to
Offering services that involve new and innovative technologies doesn't afford service providers a regulatory exemption.
There regretfully was no comment on bright line guidance from ASIC on when a crypto-asset would be a financial product, or how a crypto-asset financial product could be offered under the existing regulatory framework, guidance which has been called for by the industry for many years.
International Collaboration
The global nature of cryptocurrencies necessitates international regulatory coordination. The Chair acknowledged that differences in approaches to regulating blockchain exist worldwide.
Although a consensus is developing through international financial regulatory bodies such as the Financial Stability Board, IOSCO, the Bank for International Settlements and anti-money laundering
The FSB, IOSCO and BIS have all published risk-focused reports on crypto-assets and have set out principles in relation to DeFi which seek to 'look through' decentralised systems and locate persons who could be regulated.
Collaboration remains crucial to share lessons and establish harmonised regulatory efforts, which ensures that investor protection and market integrity remain consistent, regardless of the jurisdiction. It seems more education may be needed around how decentralised systems do not fit neatly within laws and regulations made for centralised systems.
Regulatory Clarity and Enforcement
On the question of enforcement,
The most comprehensive regulatory framework in the world would be incomplete without strong enforcement to support it.
This is again a curious statement as there is no comprehensive regulatory framework for crypto-assets, but ASIC has brought a number of enforcement actions against crypto service providers operating at the regulatory perimeter.
Conclusion
The ASIC Chair's views, that regulatory clarity, coupled with strong enforcement, provides the certainty needed to encourage innovation, will be welcomed by many if the regulatory clarity is fit for purpose and commercial so that start-ups can attract investment and grow. Many in the crypto industry who have sought regulation in order to require basic standards be met, tackle rogue operators and scammers, and give Australians confidence to use and adopt digital assets. We hope that ASIC's enforcement proceeds against rogue operators and not those who have been actively seeking clearer guidance, engaging in meaningful dialogue with the regulator and government, and makes proper allowance for those trying to protect consumers while facing an uncertain regulatory framework.
The transaction involved BlackRock, the world's largest asset manager, tokenising shares in one of its money market funds. These tokenised shares were transferred to
The tokenisation process was reportedly completed in minutes enabled by connectivity between the fund's Transfer Agent and TCN. The transfer between BlackRock and Barclays was practically instantaneous. The tokenised shares are now being utilized as collateral between counterparties to a derivatives trade, demonstrating the composability and speed of blockchain based protocols and tokens.
The benefits of tokenising securities and real-world assets have been a hot topic this year in mainstream financial markets.
According to Bloomberg,
Onyx Digital Assets already enables clients to access intraday liquidity via repo transactions. Now, with the launch of TCN, clients can benefit from additional utility from their MMF investments by posting tokenized MMF shares as collateral - a faster, more cost-effective way of meeting margin requirements.
the tokenization of money market fund shares as collateral in clearing and margining transactions would dramatically reduce the operational friction in meeting margin calls when segments of the market face acute margin pressures.
The successful collaboration between these financial titans further underscores that blockchain technology is quickly moving in the mainstream financial sector. This shift is marked by the promise of faster and more efficient settlement, along with greater transparency and security. While this journey is still underway, tokenization looks set to revolutionize traditional financial markets in the coming years.
Crypto Regulation in
The long awaited Treasury Consultation on digital currency exchange licensing has been released at the AFR Crypto Summit this morning and, as expected, rather than take an approach of using a bespoke fit-for-purpose digital currency regulation with a specialist regulator, such as the
pragmatic, consumer centric and ... striking the right balance between innovation and consumer protection and system stability.... informing consumers to be protected to make the right decision while encouraging innovation.
The Tax Office estimates there are over 600,000 taxpayers who have invested in cryptocurrency.
Despite market volatility Australians remain heavily invested in these assets around the world...collapses are front and centre with around 50,000 investors tangled up with FTX.
Platforms have sold tokens with overinflated prices and the issuers have cut and run leaving investors holding losses.
We are concerned that exchanges are being used to facilitate scams, with scams increasing 33%... this is not to say crypto is criminal, but it is being used as a vector. Bank transfers remain the primary way for scammers to move money but there are protections and regulation to protect consumers.
All of this points to a need for regulation to protect consumers, that's important in and of itself, but ... providing certainty will drive innovation and it will drive investment.
The government sees extraordinary opportunity in the underlying technology ... it will be the tokenisation of real world assets which will drive real innovation in financial and product markets and, frankly, we want to encourage this... but for any of this consumers need to have trust.
We need a fit-for-purpose regulation which keeps pace with the rapidly evolving ecosystem and technology... we did consider applying Australian financial products laws to all crypto-assets or starting a new custom regulation from the ground up but we felt both approaches would lead to regulatory overreach and impact products.
Our approach is to regulate crypto-asset platforms to promote digital asset innovation, to provide clarity and to protect consumers.
We have taken input from the consultation from our token mapping exercise... it's not every token in every scenario that requires oversight... instead our focus will be on the entities that hold customers digital assets for Australians. Digital asset platforms will be required to hold an [AFSL]. The benefits of this approach is that it leverages
The comments from the Assistant Treasurer are positive and if proposed regulation strikes the right balance then the on-going 'brain drain' may be addressed and
Businesses which hold more than
In interview with
You can imagine the sorts of things we have seen emerging...based on what's in the public domain the [FTX allegations] are the actions we are regulating against: conflicts of interest, acting in the best interests of customers, capital and custody rules, all of the things that you would expect to apply in a grown up business where someone is dealing in assets for customers.
And
From our token mapping exercise... it was quite clear to us that a whole bunch of things being developed and offered was financial products... derivatives obviously... as we looked at the most appropriate regulatory model, we wanted to ensure we didn't create a whole new stack of regulation which sat in addition to Australian financial services law, and build into where it currently does apply.
Short answer is yes, we will have a 12 month lead in, we fully expect to see further consolidation going on in the industry... there will be high expectations from ASIC... [the ASIC Chair
Find our summary of the paper here.
Dismissed!
In a filing dated
The regulator previously alleged that Garlinghouse and Larsen:
aided and abetted Ripple's violations of Section 5 of the Securities Act of 1933 with Ripple's "Institutional Sales" of XRP.
This follows the summary judgment delivered back in July, which found that Ripple did not violate US Federal securities laws by selling its XRP token on public exchanges and that XRP was not in and of itself a security. However, in the same ruling, the Court identified that Ripple's
In respect of this, the filing noted:
Garlinghouse and Larsen responded to the recent dismissal in a statement, commenting:
For nearly three years, Chris and I have been the subject of baseless allegations...the
Today, we are legally vindicated and personally redeemed in our battle against a troubling attempt to abuse the rules in order to advance a political agenda to suffocate crypto in America.
Will a NSW Court decision curb no reason de-banking?
A judgment handed down by the
Background
The case centred on
This obligation, Human Appeal argued, arose from
- Client's legitimate needs and interests; and
- Beyond Bank's interests and obligations, including their prudential obligations.
According to Parker J,
Web3 implications
While Human Appeal is a charity, its de-banking experience is common to many Web3 companies. Digital currency exchange operator
Web3 companies in
The issue of debanking was considered by the
AUSTRAC has cautioned against the practice of widespread debanking of certain industries which they see as counterproductive to implementing effective risk based measures to address anti-money laundering and counter-terrorism financing risks.
The Future
Parker J's decision in Human Appeal v
The question of whether a bank owes such a duty remains ripe for further argument depending on the case and any applicable terms and conditions and industry codes. Changes to the unfair contract terms regimedue to come into effect in early November could also give a boost to potential claimants.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Piper Alderman
Level 23
2000
Tel: 29253 9999
Fax: 29253 9900
URL: piperalderman.com.au
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