Unregulated platforms only way to trade crypto, industry roundtable hears
Australian trading platforms are being forced to set up unregulated entities to offer crypto without breaching financial services licenses, a roundtable hears.
Australian trading platforms with financial licences are having to set up separate unregulated entities to offer access to cryptocurrency markets, while overseas competitors are able to poach potential customers with little effort, a technology roundtable chaired by former ASIC deputy Daniel Crennan has heard.
The state of the industry and the hoops trading platforms have to jump through is “mind blowing” according to John Winters, co-founder and chief executive of non-CHESS sponsored trading platform Superhero.
Mr Winters was one of about a dozen of the nation’s top tech talent who attended a discussion held by the Australian Computer Society, including Financial Services Minister Jane Hume, NSW senator Andrew Bragg, BeforePay CEO Jamie Twiss and ACS president Dr Nick Tate.
Criticisms and observations of Australia’s unregulated cryptocurrency market accounted for much of the two-hour discussion on Thursday, amid talks of how Australia had become increasingly popular for public listings.
Mr Winters said when Superhero entered the cryptocurrency market late last year, one of the most astonishing findings was that it could not offer crypto under the same provisions as shares.
“When it comes to crypto, our licence states that we’re not allowed to trade in unregulated products. Crypto is unregulated,” he said. “If we set up crypto as another offering on our platform we would actually be breaching our financial services licence.
“If we just treat (crypto) like a financial product and afford all of our customers the regulatory protections that you would have if you’re buying a share, that’s good, right? (Our lawyers said), ‘yeah, it is, but you’re going to breach your licence’.”
Mr Winters said the only legal way around the current financial framework was to be unregulated.
“What we had to do was effectively set up a separate entity that is completely unregulated, and run everything through that, off to the side with no investor protections … it was mind blowing,” he said.
The measures trading platforms are having to go through amid the rise in popularity of crypto products has become a sore spot for many.
Mr Crennan said Credi, where he works as a principal consultant, was increasingly being approached by fintech investors and companies seeking advice on protections.
“(When) they ask us what to do to protect themselves and the business, I say, ‘if I was you, I would prophylactically protect yourself from the future because the future is coming’,” he said.
Enforcing local trading laws against overseas investment platforms outcompeting local financial services was not a simple task, said Jaime Lumsden, a partner at fintech law firm The Fold Legal.
“What I am seeing is people are forcing themselves to stay out of AFS licencing because as soon as they move into AFS licencing, they are a disadvantage compared to their competitors,” she said.
“This is leading to perverse outcomes in how products are structured.”
Ms Lumsden said as the government looked to regulate the crypto industry, it should consider avoiding separate regimes.
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