Australia financial regulator ASIC has released a new Consultation Paper called Crypto-assets as underlying assets for ETPs and other investment products, seeking feedback on proposals about exchange-traded products (ETPs) and other investment products that provide retail investors with exposure to crypto-assets.
The consultation contains several ASIC proposals on the matter, including the establishment of a new asset kind that can be selected when applying for a new AFS license (or a variation to an existing AFS license), to cover crypto-assets.
ASIC said it considers that these products have unique features and risks which need to be recognised by market operators and product issuers in performing their functions and meeting existing regulatory obligations.
Key areas of focus for market operators and issuers in the Consultation Paper include:
- identifying crypto-assets that are appropriate underlying assets;
- establishing good practice in respect of pricing, custody, risk management, and disclosure.
ASIC Commissioner Cathie Armour said,
‘The proposals set out good practices for market operators and product issuers regarding crypto-asset ETPs and other investment vehicles that provide retail investors with exposure to crypto-assets.’
‘Market operators and product issuers need to be mindful of meeting their existing regulatory obligations when creating, operating and allowing such products, so they can be facilitated in a way that maintains investor protections and Australia’s fair, orderly and transparent markets.’
Given the unique, evolving characteristics and risks involved with crypto-assets, ASIC considers it appropriate to consult widely on the proposals in this consultation paper.
While considerable discussions with stakeholders has already been undertaken, the consultation paper is designed to assist ASIC finalise its positions on good practices for market operators and product issuers. ASIC therefore welcomes submissions from all interested parties by Tuesday 27 July 2021.
After receiving submissions on the consultation paper, ASIC will consider stakeholder feedback and issue a feedback report. ASIC intends to publish its final information on good practices shortly afterwards.
Crypto-asset ETPs have attracted significant attention globally. ASIC said that it is aware of interest in, and demand for, domestic crypto-asset ETPs. However, there is real risk of harm to consumers and markets if these products are not developed and operated properly.
ASIC considers that crypto-asset ETPs have novel and unique features that require consideration of whether such products can support fair, orderly and transparent markets and comply with our regulatory framework.
Similar issues have been, or are being, actively considered by other jurisdictions in the context of their regulatory frameworks.
The proposals in the consultation paper have been developed on the basis that ETPs and other investment products that invest in, or provide exposure to, crypto-assets are financial products under the Corporations Act, and therefore fall within ASIC’s regulatory responsibility.
The way in which crypto-assets themselves are classified and regulated in Australia is a matter for Government. ASIC notes the Senate Select Committee on Australia as a Technology and Financial Centre is considering this issue, and the proposals in this paper do not seek to pre-determine any decision the Committee may make.
ASIC regulates crypto-assets and related products and services to the extent they fall within the existing regulatory perimeter of financial products and services. Crypto-assets may be or involve financial products depending on their individual features. It is the responsibility of each crypto-asset service provider to ensure they are complying with all relevant Australian laws including those administered by ASIC.
The ASIC consultation paper on crypto asset ETPs can be seen here (pdf).
