Banks, ASICs Confront FTX Over Crypto Licensing

ASIC’s stance runs counter to the consensus view of cryptocurrency and blockchain industry stakeholders, including FTX Australia, the local arm of bankrupt mega-exchange FTX, whose founder Sam Bankman-Fried was arrested this week. week on charges of fraud and money laundering.

In its statement, FTX Australia – which went into receivership on Nov. 10, a day before its parent company filed for Chapter 11 bankruptcy in the United States – said the 21-year-old laws governing the classification and distribution of financial products were not “fit for purpose”.

“The Corporations Law and therefore the definition of a financial product was written before the invention and proliferation of crypto-assets, and as such this can lead to significant frictions for crypto-asset businesses that are uncertain of the regulatory perimeter,” he said.

“While some assets such as the cryptocurrency derivatives offered by FTX are clearly financial products, it would not be appropriate to apply this classification to all cryptocurrency assets.”

He argued that the government should prioritize innovation in regulating the cryptocurrency sector, while railing against a possible requirement for exchanges to use local third-party “custodians” to safeguard client funds. Mr Bankman-Fried was one of three directors of the bankrupt FTX Australia.

Blockchain industry body Australia – which represents startups and cryptocurrency exchanges but also includes traditional service providers such as KPMG, PwC, Deloitte, Mastercard and the Australian Securities Exchange among its members – has also opposed the requests to classify cryptocurrencies as financial products.

“We are unequivocally against bringing all cryptocurrencies into the financial products regulatory regime. The option to do so, as a streamlined path to regulatory certainty, is flawed,” the advocacy group wrote.

“The complexity of the issues raised in this consultation response speaks to the work that needs to be done to create a fit-for-purpose regime that protects consumers and encourages investment and innovation in the sector,” he continued, echoing the language used by FTX in his presentation.

In 2014, ASIC acknowledged the “challenges” associated with classifying cryptocurrencies as financial products, including that they are not normally structures through which anyone can make non-cash payments.

But in its presentation, ASIC said that the cryptocurrency market has become more complex since then and more intertwined with the traditional financial system, blurring the line between cryptocurrencies and financial products. He also reiterated his concern that too few cryptocurrency investors have understood the inherent risks associated with the nascent market.

The Banking Association of Australia supported the ASIC’s position, arguing against the establishment of the new CASSPr regulatory regime.

“The key recommendation from the ABA is to use existing licensing regimes, especially the Australian Financial Services License (AFSL), to regulate crypto secondary services where the crypto asset is functionally similar to a financial product but not strictly meets the definition of a financial product,” the lobby group wrote.

The Commonwealth Bank agreed in its own remark, which stated that viewing crypto assets as financial products would consistently enshrine the goals of “investor protection, effective competition, market integrity and risk management.”

The Financial Services Council – which represents retail pension funds, investment firms and life insurers – wrote: “There is a risk that the creation of a new crypto licensing regime could leave retail consumers without the benefit of protections, built over time under the regulatory framework of the financial services.”

The proposals came as part of a consultation on proposals from last year’s report by the parliament’s select committee on Australia as a technology and finance centre, chaired by coalition senator Andrew Bragg. But they should inform the government’s approach to regulating cryptocurrencies.

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