Ministers, regulators, policy makers and a wide cross section of the financial services industry met in Melbourne this week for the ASIC Annual Forum. This year's theme was "Navigating Disruption" and provided an opportunity to re-cap ASIC's work over the last year, and discuss some of the major topics currently vexing regulators.
The event coincided with the release of ASIC's enforcement priorities for 2024. The enforcement priorities help shape ASIC's internal budgets and prioritize resources across the various markets within ASIC's jurisdiction.
Crypto-assets entered ASIC's list of strategic priorities and ASIC's separate list of enforcement priorities in 2022 following the explosive growth of cryptocurrency and decentralised finance during the pandemic. Crypto-assets again featured in ASIC's strategic priorities for 2023 with ASIC adopting a dual focus on supporting the development of an effective regulatory framework (now underway in the Treasury Consultation on Digital Asset Platform licensing) and taking enforcement action for the stated reasons of protecting consumers from harms associated with crypto-assets.
ASIC's prioritization of crypto related products has seen a wave of crypto-related enforcement actions, particularly targeting products which ASIC's believes mimic traditional financial products. ASIC has also taken action against crypto-related products under its powers in relation to design and distribution obligations under the Corporations Act.
These actions have included:
Holon Investments – stop orders relating to the distribution of crypto funds;
Qoin – alleged unlicensed financial services/misleading statements;
Finder Wallet – alleged unlicensed financial services/inadequate risk disclosure;
Kraken - alleged unlicensed margin lending product/failure to comply with design and distribution obligations including the requirement to issue a Target Market Determination.
A number of these actions are being actively defended and remain pending before the Courts.
While crypto-assets remain a strategic priorities in ASIC's 2023-2027 Corporate Plan, the omission of crypto-assets from ASIC's list of enforcement priorities is notable. New priorities have been added in relation to superannuation, car insurance and insurance claims handling, among others. The full list can be accessed on ASIC's website.
Notwithstanding this change, Sarah Court, ASIC's Deputy Chair was keen to highlight the regulator's robust enforcement record and willingness to test the boundaries of its authority, which is something it has reiterated on several occasions in the context of actions involving crypto-related offerings. Reflecting on ASIC's record prior to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Ms Court commented:
Our enforcement approach of today, by contrast, is proactive, strategic and bold.
While ASIC will still consider a negotiated outcome in some cases, it has adopted a more aggressive litigation posture in recent years. Ms Court was also keen to reiterate that design and distribution obligations remain an area of focus and that ASIC has several other investigations underway on this topic.
The decision to omit crypto from ASIC's 2024 enforcement priorities may be a function of a number of new emerging areas of concern. These include the implications of artificial intelligence for markets which was a hot topic for discussion at this year's ASIC Forum. Moreover, ASIC already has a number of crypto-related actions underway which are being defended. Indeed, just because something is no longer a named ASIC enforcement priority is no assurance that ASIC will not continue to devote a significant share of its enforcement resources to that areas where they perceive wrongdoing.
While this development may signal that ASIC is waiting for the Treasury consultation process on digital asset platforms to play out, crypto-asset businesses should continue to focus on legal and compliance matters in 2024. At the ASIC Forum, ASIC's Head of Markets Supervision, Clarissa Alridge, noted that ASIC is already starting to think about supervision of crypto markets and the implementation of a digital asset platforms licence.
With a licensing regime for digital asset facilities under the existing AFSL regime now in the works, there are good reasons for crypto-asset businesses to explore licensing options and ensure they have robust legal and compliance frameworks in place in anticipation of needing to prepare a licensing application once legislation comes into effect.
Written by Steven Pettigrove and Michael Bacina