Commissioner Alan Kirkland of the Australian Securities and Investments Commission (ASIC) delivered a speech on crypto policy, innovation and regulation this week as part of Blockchain APAC’s Policy Week.
In his address, published 20 March 2024, the Commissioner commented on ASIC’s approach to crypto regulation:
For ASIC’s part, we seek to promote the growth of responsible innovation in financial services by balancing our approach to enabling innovation with consumer protection and market integrity outcomes.
Mr Kirkland's comments mirror ASIC Chair, Mr Joe Longo's, past comments on the regulatory trilemma. Mr Longo has previously emphasized a priority on consumer protection over innovation and market integrity, and Mr Kirkland's speeches also indicated a focus on "regulatory outcomes".
Asset tokenisation
Mr Kirkland noted ASIC's increasing interest and focus on tokenisation of financial products and ‘real world’ assets. ASIC, together with the Reserve Bank of Australia (RBA), worked closely on last year's Central Bank Digital Currency (CBDC) pilot, with the regulator supporting the trial by assessing use cases and providing relief from the Corporations Act to relevant participants.
With respect to real world asset tokenisation, Mr Kirkland indicated that ASIC will be considering:
How does tokenisation fit in the current regime?
What, if anything, may be required by way of law reform or guidance?
What are the opportunities and risks?
How can we effectively address the cross-border issues and dynamics?
In recognizing the ‘significant operational and other changes’ that flow from tokenisation, Kirkland noted that:
Some types of tokenisation will be regulated through the current regulatory regime, while others will be regulated through the Government’s digital asset platform proposal.
Regulatory reform
On the topic of regulatory reform, Kirkland reiterated ASIC’s support of the International Organization of Securities Commissions (IOSCO)’s approach of ‘same activity, same risk, same regulatory outcome’.
This approach has been criticized as an inflexible one in some quarters, that a one-size-fits-all approach is not in application "technology neutral", if it does not recognize the risks posed by delivering services in new ways. In that context, a "same activity, same risk, same regulatory outcome" mantra may serve to tip the regulatory scales in favour of incumbents.
According to Kirkland:
[ASIC's] desired outcome is a clear set of rules that maintain market integrity and mitigate the risks to consumers and investors – backed by mechanisms that promote compliance with these rules and enable us to enforce them effectively.
Once a regulatory regime for digital asset platforms is implemented, ASIC expects to play a key role in its ongoing administration and enforcement of laws within their remit.
While the proposed reforms await finalisation, Kirkland revealed that ASIC has ‘already begun thinking about implementation’ including ‘processes and guidance’, through discussion with industry participants.
Regardless of the final regime, Kirkland indicated ASIC would not be providing proactive assistance with digital assets:
If you are operating a business engaged in digital assets, the onus is on you to satisfy yourself that you are operating within the law.
This reflects ASIC's guidance on crypto-assets in Information Sheet 225 which emphasizes the importance of persons dealing in crypto-assets obtaining legal advice. A similar approach risks leaving industry guessing, particularly in circumstances where the law isn't clear as demonstrated by ASIC's recent enforcement actions against Block Earner and Finder Wallet.
Regulatory enforcement
Kirkland finally addressed ASIC’s ‘strategic, risk-based approach to enforcement’. In particular, he cited the regulator’s partial defeat in the recent Block Earner judgment, noting that the case turns on its facts and suggesting that industry should approach the decision with caution.
With respect to the Finder Wallet case where the Federal Court held Finder Wallet had not engaged in unlicensed financial services offering, the Commissioner clarified that ASIC is ‘still considering the judgment in that matter’ which suggests an appeal may still be lodged.
While it is hopeful that ASIC is already contemplating the rules necessary to support regulated digital asset platforms, the details of ASIC's approach remain to be fleshed out. These will be all important to determining the success of reform efforts. In navigating the regulatory trilemma, ASIC faces a difficult task of seeking to establish a regulatory framework that supports consumer access and protections, without stifling innovation or pushing innovators and consumers offshore. Such an approach could perversely undercut the very protections which the industry and regulators are working towards.
Written by Michael Bacina, Steven Pettigrove and Kelly Kim
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