ASIC urges parliament to close crypto regulatory gap

ASIC chairman Joe Longo says regulation of crypto assets would require involvement of the full gamut of regulators.

ASIC chairman Joe Longo in Treasury Gardens, Melbourne. Picture: David Geraghty

The federal government must urgently address a major regulatory gap in Australia’s cryptocurrency marketplace, the nation’s corporate watchdog has told parliament.

Australian Securities & Investments Commission chairman Joe Longo, appearing before a parliamentary oversight committee on Friday, also said he had followed his own advice – he had not invested in the asset class because he did not understand it.

Mr Longo said there were several “very difficult” questions of policy, which could only be resolved with the involvement of all the nation’s various regulators.

“(The questions) have to be ­answered, frankly, by the government, and whatever the answer is, it will almost certainly require the co-operation of ourselves, the Reserve Bank, APRA, the ACCC and the tax office,” he said. “There will be a lot of work to go around.”

Mr Longo’s comments follow warnings from the Reserve Bank about the risk of holding risky cryptocurrencies during the “current fervour” – while other major financial institutions consider their engagement in the area.

Commonwealth Bank earlier this month said it would allow customers to hold and use cryptocurrencies using its banking app.

Mr Longo had already warned consumers to approach crypto investments with “great caution”.

On Friday, Mr Longo said the core problem was that cryptocurrencies were not financial products under the law and were therefore unregulated. Despite this, and the fact that crypto behaved like a speculative, volatile and risky asset, and was also associated with an increasing number of scams, it had captured the imagination of many investors.

Estimates have suggested up to 8 per cent of the Australian population is currently invested in crypto, after huge growth over the past 12 months.

Mr Longo said he had not personally invested, heeding his own advice not to put money into anything he did not understand.

“So it’s a matter for parliament and whether it wants to prioritise this issue,” he said. “For my part, parliament should address it as quickly as it can.”

Mr Longo’s evidence echoed his thoughts in a speech earlier this week, when he said investors were – for now at least – effectively on their own. He acknowledged that financial advisers were in a difficult position, with clients “banging down the door, wanting to divert their savings into ethereum or dogecoin, a currency originally conceived as a joke”.

In earlier evidence, Mr Longo commented on the imposition of licence conditions on the ASX after last November’s outage, saying the time was right for closer supervision of the operator.

“The time has now come for the tightening of supervision and accountability around the ASX, they accept that,” he said.

“That is a reflection of the fundamental significance of the ASX to the Australian economy.”

Mr Longo said ASIC had ruled out court action as it was “not the appropriate way of proceeding”.

“That would have been a protracted process and I don’t believe it would have led to the result we got,” he said.

Mr Longo said ASIC did not find the ASX breached its licence conditions. “We found enough to want to warrant an imposition of these licence conditions,” he said.

Mr Longo said the ASX had committed to fixing issues into the future and holding executives accountable, including potentially docking bonuses.

He said it would not be right for ASIC to issue prescriptive rules for the ASX in how it rolls out the upgrade of the CHESS settlement system.

Mr Longo warned if things went “materially wrong” with the upgrade, there would be “legal consequences flowing from that”.

The report into the ASX outage has been released to members of the committee.

After the committee called on ASIC to put the report out more broadly, Mr Longo said the regulator would “revisit the release” and look to consider releasing “certainly more of it than we have so far”.

ASIC was quizzed by committee members regarding media reporting on QSuper and a court action launched against the super fund by members regarding overcharging of insurance.

ASIC commissioner Danielle Press said the regulator was watching the case “very closely” and had spoken with QSuper about its plans to inform members it intended to charge a levy to cover potential costs. This comes as QSuper moves to merge with Queensland fund Sunsuper.

“We will be speaking with QSuper and Sunsuper to ensure the trustees have taken that into consideration to ensure the merger is in the best interest of both funds,” Ms Press said.

Ms Press revealed ASIC had engaged with QSuper after it won a case in the Queensland ­Supreme Court allowing it to charge members a special fee to cover potential penalties slugged to the super fund.

ASIC also warned it was closely watching how super funds were communicating with members after being named and shamed in APRA’s performance targets.

Ms Press said the regulator had “ongoing investigations” into a number of funds and had spoken with unions about the communications they had sent members about funds that had failed APRA’s tests.

“We warned a number of ­unions who had sent letters on behalf of funds, suggesting they were providing financial advice,” Ms Press said. “We asked them to stop doing that.”

Ms Press said ASIC had also told funds to improve their disclosures around failing APRA’s tests.

“We sent an expectation letter to trustees reminding them of their obligations,” she said.

ASIC reviewed fund websites, issuing some funds notices that if they did not increase the size or prominence of notice it “would be a breach of the obligations”.

Mr Press said the corporate watchdog had investigated 23 funds for insider trading and breaches of director duties around the switching by staff of super balances between listed and unlisted allocations.