Cryptocurrency investors have been warned by the Australian financial watchdog that they are ‘on their own’ when it comes to protecting their investments. Australian Securities & Investments Commission (ASIC) chair Joe Longo warned the watchdog could only protect investors who buy defined ‘financial products’.
But many cryptocurrencies and other digital assets are not regulated by ASIC because they are not considered a ‘financial product’ and sit outside the definition outlined under current laws. This means if a cryptocurrency fails or a platform is hacked, investors will most likely lose all the money they have invested.
Speaking during the AFR’s Super & Wealth Summit, Mr Longo said the demand-driven rush of crypto has proven difficult for financial advisors to offer counselling to clients. ‘ASIC has already provided some guidance on exchange-traded funds linked to crypto-assets — they at least are financial products, and traded on a licensed exchange, so there will be some protections there. But for the most part, for now at least, investors are on their own,’ he said.
Mr Longo also said investors should look at cryptocurrencies with ‘great caution’ due to the lack of certified advice over the emerging technology. ‘The implications for consumers are potentially huge. It is almost an article of faith that no one should invest in something they don’t understand,’ he said. ‘Who among us can say they really understand crypto-assets and cryptocurrencies?’ he asked.
Despite his warning, Mr Longo acknowledges crypto could be more than an online gamble after Commonwealth Bank (CBA) announced it would trial trading bitcoin and other assets. CBA customers will be able to trade Bitcoin, Ethereum, Bitcoin Cash and Litecoin via its 6.5million-user banking app as part of a pilot program – if the trial is successful cryptocurrency trading could expand to more customers in 2022.
A recent Senate Committee report revealed 17 per cent of Australians are investing in cryptocurrency.
Financial Services Minister Jane Hume said Cryptocurrencies were ‘not a fad’ and will become an inherent part of Australia’s financial system. She added the technology wasn’t going away anytime soon and that Australians shouldn’t be ‘fearful of the unknown’. So as an industry, and as a Government, we need to acknowledge this is not a fad. We should tread cautiously, but not fearfully,’ she said during an address to the summit.
‘If the last 20 or 30 years have taught us anything, it’s that all innovation begins as disruption and ends as a household name. Decentralized finance underpinned by blockchain technology will present incredible opportunities.’
