• Michael Bacina

ASIC Chair's critical comments on crypto

Mr Joe Longo, the Australian Securities and Investment Commission (ASIC)'s Chair, has made interesting comments in recent weeks concerning cryptocurrencies and decentralised autonomous organisations (DAO). We've rounded up a few of his digital currency comments below and will follow soon with his DAO comments.

First, Mr Longo accepts the keen and rising interest in digital currencies, saying at the AFR Superannuation and Wealth Summit that (emphasis added):

The demand-driven nature of the rush into crypto has thrown up some unique challenges. At present many crypto-assets are probably not ‘financial products’, making it difficult for financial advisers to offer counsel.

(our emphasis)

In testimony before the Senate Oversight Committee on Friday 29 November 2021, Mr Longo continued that theme:

[Crypto is] clearly assuming a lot of significance and getting a lot of interest, and we are being asked, 'What are you doing in connection with this new investment opportunity, or a new asset class?'
...this is an asset class that's assuming great interest and significance.
It's captured the imagination of many investors and many consumers.
I've been surprised just in the short time I have been chair at how quickly this topic has assumed significance and interest to the general community. In just six months I have been quite struck by the level of interest and the growth in what appears to be people putting their money into this...

Mr Longo then engaged in a fascinating exchange sure to be welcomed among those who have been concerned at the risks of ASIC treating digital assets as securities:

Mr HILL: Is it ASIC's firm and fixed view that you don't have jurisdiction or an ability to regulate currently? Is there any thinking and movement there? That's one question. My understanding is that you've previously said you couldn't regulate cryptocurrencies as securities. Is that still the position?
Mr Longo : They're not financial products. That's right.

This is a particularly interesting comment given ASIC's INFO225 specifically considers this and raises "sign posts" including asking:

When could a crypto-asset or an ICO be or involve a financial product?

INFO225 then continues to set out the definitions of interests in managed investment schemes, offers of a security, offers of derivatives and non-cash payments facilities and strikes a tone which would lead many to be concerned about ASIC treating digital assets as securities.

We suggest the most intellectually sound approach is to:

  1. consider the starting point of any digital currency or which functions solely as a peer-to-peer medium of exchange being a mere form of property, as suggested by the UK Jurisdiction Taskforce; and

  2. then consider any additional features inherent to that token beyond that token being a "mere" Bitcoin or Ether fork, such as whether the token provides, by virtue of holding it, airdrops or financial reward, and whether those features take a token into the regulatory perimeter of a defined financial product.

Viewed from that approach, the Chairman's comments are perhaps more consistent with INFO225, but it is worth noting in later comments Mr Longo said:

when a situation is brought to our attention about whether a particular crypto opportunity might be a managed investment or a derivative, it comes back to what I said earlier about whether it's a financial product. But the Corporations Act is not designed, obviously, for this asset class at the moment.

This seems an interesting indication that, at the present time, ASIC is likely to wait for Parliament to provide a clear policy directive on cryptocurrency before engaging in any clear identification as to whether it considers any particular token is or is not a financial product.