ASIC sets a positive trajectory for an Australian Bitcoin ETF
Following the close of Consultation Paper 343: Crypto-assets as underlying assets for exchange traded products (ETPs) and other investment products in late July, ASIC's view on an Australian Bitcoin ETF has been revealed. ASIC has released guidance outlining their response and updated a number of existing regulatory guides. ASIC's response provides insight into ASIC's view about best practice for crypto-assets entering the regulated space noting the
near unanimous support for ETPs and other investment products that provide exposure to crypto assets.
In a media release detailing the update, ASIC Commissioner Cathie Armour said:
Crypto-assets have unique characteristics and risks that must be considered by product issuers and market operators in meeting their existing regulatory obligations.
ASIC's Report 705 outlines specific responses and submissions received, and significant changes have been made to INFO 225 and INFO 230. These include references to monitoring standards, custody of crypto-assets, pricing methodologies, disclosure and risk management where listed products are involved.
Report 705 is separated into 4 categories, being:
Meeting INFO 230 'Exchange traded products: Admission guidelines' expectations;
Responsible entity obligations;
Listed investment entities; and
AFS Licensing for a new kind of asset.
Despite Armour's statement, in accordance with ASIC's long standing regulatory policy the guidance attempts to remain technology neutral. This means limited reference to technology specific crypto asset requirements. ASIC prefers to issue guidance around best practice and leave the decision for admitting listed ETPs backed by crypto-assets to the market operators.
However, a key exception to this is the new category for AFS Licensing for registered managed investment schemes with the introduction of a crypto-asset specific category.
ASIC challenged submissions which noted the UK approach recognising crypto-assets given they carry the indicia of property but didn't give any specific reason why crypto-assets would not, absent other indicia, be simply treated as property. Oddly, ASIC stated that submissions had not convinced ASIC why crypto-assets should be treated as property as a starting point. The UK Jurisdiction Taskforce publication on this point is filled with reasoning on this front and it is disappointing to see ASIC fail to engage with what could have strengthened the legal standing of crypto assets generally.
ASIC notes commodities are not an existing asset kind in licensing frameworks and Said that designating crypto-assets as commodities would not solve the licensing issue.
ASIC has thus established 2 kinds of authorisations for applicants to apply for if they wish to operate a registered managed investment scheme holding digital assets, being either a:-
a 'named scheme' authorisation (whether the scheme holds one or more crypto assets) which means the licence holder would only be able to operate a specifically identified scheme; or
a 'kind scheme' authorisation for applicants who have operated 2 named schemes for at least two years. Once granted this will allow licensees to operate multiple crypto-asset registered schemes without needing to vary their license with the introduction of each new scheme.
At present these options are only available for holding BTC or ETH.
Also of note are:
Key features which have been identified for market operators to consider when approving ETPs;
ASIC is not limiting crypto asset custodians to Australia and is not changing the existing class order regarding custody of scheme assets; and
ASIC is not mandating any specific disclosures in disclosure documents relating to crypto assets.
This is an exciting shift for the regulation in crypto assets. The timing of the release is in quick succession with the Senate Report. It will be interesting to see whether the Senate Report is the impetus for other regulators to issue guidance in the near future.