ASIC Chair briefs Parliament on FTX fallout
The Chairman of ASIC, Mr Joe Longo, appeared before the Parliamentary Joint Committee on Corporations and Financial Institutions (the Committee) on Monday and addressed questions on the collapse of FTX and the corporate regulator's scrutiny of crypto-assets.
The Committee questioned the circumstances which permitted FTX to obtain a license to operate in Australia. Mr Longo noted that FTX had acquired its AFSL lawfully from an existing licence holder. In response to further questioning, ASIC's representatives noted that the corporate regulator does not as a matter of course scrutinize AFSL licence acquisitions and that there are limits to its ability to scrutinize fit and proper persons in those circumstances. It was suggested that ASIC should be empowered with an approval process for the acquisition of licence holding entities, as exists in the UK, rather than relying on ASIC's already powerful investigative tools under the ASIC Act and the Corporations Act.
Mr Longo commented more broadly on ASIC's recent work in relation to crypto-assets which he referred to as one of ASIC's top 8 priorities (which also now includes the ASX following the failure of its CHESS replacement program). He reiterated his previous comments that investors should be wary of investing in crypto-assets and expressed concern about consumer harm, saying:
Promotion of crypto assets through popular and viral channels can make them appealing to investors, but there continues to be lack of public awareness of their highly volatile, risky and complex nature.
Mr Longo stated that ASIC had added internal resourcing over the last year to prioritise its work and enforcement activity in relation to crypto-assets. He noted that ASIC was increasingly scrutinizing crypto-based financial product offerings and testing the limits of the regulatory perimeter:
We think it’s important to test this position in the courts, as the financial services law provides important protections for consumers.
Mr Longo nevertheless sought to temper expectations of ASIC's work, suggesting that ASIC's jurisdiction over crypto-assets as a whole remains "very limited":
Unless it's a financial product, we don't have any regulatory remit.
Representatives from ASIC briefed the Committee on ASIC's recent enforcement action against Qoin over allegations of misleading and deceptive and unlicensed conduct. They also referenced its action, two weeks ago, commencing civil penalty proceedings against Block Earner for allegedly offering products without an AFS licence that ASIC believes are financial products under the financial services law.
Mr Longo commented that a coordinated government response is required to address the regulatory challenges posed by crypto-assets, including AUSTRAC, the ACCC, RBA and Treasury, and reiterated his support for a regulatory regime in relation to crypto-assets. However, he reiterated the importance of getting it right and not moving too hastily to impose a regime which may not be fit for purpose:
To be very clear, I'm not against regulating the space—I'm clearly in favour of it—but what concerns me about it is that it does pose some unique challenges. I think my message is that we need not to rush into it; we need to try to do our best to get it right.
The ASIC Chair's comments to the Committee underline that crypto is now firmly on Australia's legislative and regulatory agenda following the FTX collapse. With the Government moving up its timeline for introducing a draft bill addressing cryptocurrency exchanges and custodians, crypto is likely to remain high on the agenda for some time to come.