ASIC chief Joe Longo advises ‘great caution’ in cryptocurrency investments

ASIC chairman Joe Longo has warned that crypto assets are little understood and it’s almost an article of faith that no one should invest in something they don’t understand.

ASIC chairman Joe Longo: “The maxim ‘don’t put all your eggs in one basket’ comes to mind.” Picture: David Geraghty

ASIC chairman Joe Longo has warned consumers to approach crypto investment with “great caution”, saying the industry was little understood and it was almost an article of faith that no one should invest in something they don’t understand.

Referring to Commonwealth Bank’s recent initiative to propose a means of exposure to crypto for its retail customers, Mr Longo said it was a telling sign that the arrival of crypto was being driven by “extraordinary” consumer and investor demand.

“Yes, it’s only a pilot project but the overall direction is clear; the debate is no longer on the fringes of the financial services industry,” he told a business audience on Monday.

“Those here who are directly involved in the broader managed investments sector will understand the serious implications of investing without understanding.

“The maxim ‘don’t put all your eggs in one basket’ comes to mind.”

The ASIC chief said the demand-driven nature of the rush into crypto, had thrown up some unique challenges.

Many crypto assets were probably not financial products, making it difficult for financial advisers to offer meaningful advice.

What can be done, he asked, when clients were “banging down the door” wanting to divert their savings into Ethereum or Dogecoin, which was originally conceived as a joke.

ASIC had already provided some guidance on exchange traded funds linked to crypto assets – they were at least financial products and traded on a licensed exchange so there were some protections.

However, for now, at least, investors were “on their own”.

“The pandemic and lockdowns, coupled with low interest rates, have accelerated the pace of change in the market,” Mr Longo said.

“And the technology underpinning these changes brings with it many potential opportunities and benefits.

“In conclusion, ASIC does not strive to eliminate risk, but nor should be ignore it.

“ASIC will always enforce the law as it stands, using the many means available to us. We need to be careful that those laws keep pace with change, and with the community’s realistic expectations and demands.”

At the same event, Australian Prudential Regulation Authority deputy chair Helen Rowell highlighted the inadequacy of the product range and choice for people who were transitioning into retirement.

Ms Rowell said the superannuation industry over the past 30 years had grown into a financial behemoth, with 156 APRA-regulated funds offering thousands of products and options and managing assets worth more than $3.3 trillion.

“But the post-retirement phase remains very much a fledgling,” she said.

“Australians might be transitioning into retirement in ever-growing numbers and with increasingly higher balances, but the availability of a wide range of quality products to help them and ultimately use their savings, potentially over decades, has failed to keep pace.”

Ms Rowell said that, over the next decade, an estimated 3.6 million Australians would move from the accumulation phase to the retirement phase of super, with about $750bn in aggregate retirement savings.

As life expectancy continued to extend, Australians would need to manage their money for increasingly longer periods, yet on current trends most would not seek formal guidance or advice to help their decision-making.

Fewer still would invest in a product that managed longevity risk.

“While retirees are ultimately entitled to use their savings any way they choose, their quality of life could be compromised if their choices are not well-informed and they can’t choose from a range of good quality products,” Ms Rowell said.

“Yet in spite of the size of the potential market, and the clear need for better retirement income solutions for retirees, there are relatively few products available, and demand for them is low.

“In seeking to address this and capitalise on this opportunity, participants in the business of helping consumers with their wealth management need to understand the needs, motivations and fears of their customers, and design products accordingly.”

Innovation was required, but also the caution not to take unnecessary risks or create unnecessary complexity in managing retirees’ nest eggs.

Above all, Ms Rowell said, they needed to help change hearts and minds on why Australia mandated retirement savings.

If the purpose was to provide an income in retirement, then a much stronger focus on delivering for retirees in the retirement phase was needed.