ASIC warning on cryptocurrency: Be prepared to lose everything
The corporate watchdog says it has limited power to police risky cryptocurrency investments after it emerged failed FTX was able to purchase a financial service licence before its collapse.
The corporate watchdog says it has limited power to police risky cryptocurrency investments after it emerged failed FTX was able to purchase a financial service licence that allowed it to “fleece investors” before its $32bn collapse.
Australian Securities & Investments Commission chief operating officer Warren Day told a parliamentary committee that the regulator was restricted from undertaking an assessment when a financial services licence was transferred to a new company.
FTX was able to buy an Australian Financial Services Licence last year – allowing it to advise investors on derivatives and other assets. About 4.1 million Australians have crypto assets, higher than the global average.
“We have tightened our requirements around new licences but the ability to scrutinise off-market transfers is very limited,” Mr Day said.
FTX, one of the largest cryptocurrency platforms in the world, collapsed in November. About 28,000 local customers have been caught up in the collapse of FTX with some claiming to be $US1m ($1.5m) out of pocket.
ASIC chair Joseph Longo told the committee Australians “risked losing everything by investing” in cryptocurrency, but he had to be realistic about the “limits of regulation”. He said ASIC’s jurisdiction over crypto was restricted unless it fell into the definition of a financial product.
“We are not talking about a piece of land or a painting – something you can touch or feel,” Mr Longo said on Monday. “These are not tangible assets. What we are talking about is digital code. With FTX, one of the issues is around the custody of assets and where these assets actually went.”
ASIC is expected to soon make a final decision on whether to make a full stop order on cryptocurrency asset manager Holon Investments. ASIC issued an interim stop order in October against Holon, preventing it to market three funds to retail investors because it wasn’t taking into account their financial objectives.
When it put the temporary stop on the Holon funds, ASIC used the broadest definition of an investor and still considered three crypto funds that separately invested in bitcoin, ethereum and filecoin as too high-risk to market to retail investors.
Mr Longo said blockchain, the technology that enables cryptocurrency, had the potential to transform businesses, but as a financial investment, crypto was volatile. He said Australia was attempting to learn from other jurisdictions, including Singapore, in introducing regulation.
“People should not be doing it unless they are prepared to lose everything,” he said. “It is not just me saying it, but regulators all around the world.”
Mr Longo said crypto was one of ASIC’s key priorities given the collapse of FTX and even sophisticated investors were being caught up in the hype. “What FTX has shown is that the emperor was not wearing any clothes,” he said.
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