Australian regulator consults on crypto investment products

ASIC wants to establish which cryptocurrencies are suitable for ETPs and how they can be reliably priced and custodied

The Australian Securities and Investment Commission (ASIC) published a consultation paper today on how investment products providing exposure to crypto assets could meet existing regulatory expectations. Market participants are invited to give feedback on the paper, which is titled Crypto-assets as underlying assets for ETPs and other investment products.

The regulator has noticed a rise in interest in crypto-backed exchange-traded products (ETPs) in Australia and is therefore considering their risks. The key issues being considered are which crypto assets are suitable for ETPs and how they can be reliably priced and made compliant with regulations on custody, risk management and disclosure.

In terms of determining the suitability of underlying crypto assets for ETPs, ASIC proposes working with Australian market licensees to establish whether the asset has the willingness of service providers, the support of institutions, a mature spot market, a regulated futures market, and a robust and transparent pricing mechanism.

ASIC Commissioner, Cathie Armour, explained, “The proposals set out good practices for market operators and product issuers regarding crypto-asset ETPs and other investment vehicles that provide retail investors with exposure to crypto-assets.”

The paper also makes proposals about good practices for crypto asset custodians. These include storing private keys in isolated hardware devices, taking a multi-signature approach and that custodians should have specialist crypto expertise and infrastructure.

Commissioner Armour added, “Market operators and product issuers need to be mindful of meeting their existing regulatory obligations when creating, operating and allowing such products, so they can be facilitated in a way that maintains investor protections and Australia’s fair, orderly and transparent markets.”

Australia has been fairly progressive in terms of crypto regulation. Although the country’s goods and services tax had previously subjected cryptocurrencies to double taxation, this was changed in 2017 when cryptocurrencies were declared legal and treated as property subject to capital gains tax.

Cryptocurrencies are also subject to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, which requires crypto exchanges to be registered on the Digital Currency Exchange Register and to verify and keep records on their users.

Clearer regulation will likely be welcomed in Australia, where a report earlier this month showed that crypto adoption is growing. A sixth of Australians now own cryptocurrency – an increase of 42% since the start of the year – but risk is still the biggest deterrent.