Home / Regulation / ‘Promise, celebrity, volatility’: Longo lays out ASIC’s concerns for year ahead

The chair will take a hard line on DDO and crack down on scams, but his major concern is crypto misinformation. "My job is to be frank with the Australian people," he said.

ASIC will continue its quest to wrestle cryptocurrency into the regulatory ecosystem after chair Joe Longo revealed it as a “major concern” this week.

Other issues remain crucial – an increase in scams and a firmer stance on design and distribution obligations among them – but misinformation about the burgeoning cryptocurrency sector is now front of mind for the watchdog.

The chair characterised the sector as “a financial innovation full of promise, celebrity and volatility” at a Committee for Economic Development of Australia conference on Tuesday.

Noting the upswing in crypto-asset investing during the pandemic, Longo (pictured) highlighted recent ASIC research showing cryptocurrency was the second most common product type held by investors (44 per cent), behind only equities (73 per cent). For a quarter of cryptocurrency holders it is their only investment, he said, “drawn in by promises of high returns and slick advertising”.

An alarming statistic, he revealed, was that 80 per cent of cryptocurrency investors did not believe it is a risky asset – even after US$2 trillion was wiped off the cryptocurrency market in recent months.

“ASIC’s essential warning to consumers considering crypto assets is this,” he said. “They are highly volatile, inherently risky and complex. I am concerned that investors do not fully understand what they’re investing in, or the very significant risks.”

Longo’s warning comes just one day after Treasurer Jim Chalmers announced a consultation with stakeholders that will lead to a framework on cryptocurrency regulation.

As the first step in its crypto reform agenda, Treasury will prioritise the ‘token-mapping’ work it’s soon undertaking to better map activity in the sector.   

A major concern

Getting a regulatory handle on what Longo labelled a “major concern” for ASIC is problematic given that it exists outside of the licensed ecosystem (except for a handful of crypto-based ETFs) and usually operates in cross-border lines, making stakeholders hard to identify and near-impossible to police.

Exacerbating the difficulty in regulating an industry from scratch, Longo described, is that no one country has come up with a plan that ASIC could hope to emulate.

“Unlike climate change and climate risk disclosure, I think we’re a long way from getting a global consensus of what to do about crypto,” he said. “So I think the first point is that we will have to design a regulatory framework that suits us, that works within our existing legal and regulatory arrangements.”

‘Disrupt and deter’

The government’s planned consultation on crypto-regulation is the first cornerstone of a three-pronged attack the regulator is taking on crypto, Longo explained.

The second will be enforcement action to “disrupt and deter” harmful products that do come under its purview.

The final action will be collaboration and co-operation with international peers on standards setting, he said, “because the crypto ecosystem does not observe borders”.

The one thing ASIC won’t do is gloss over the dangers consumers face in cryptocurrency investment.

“My job is to be frank with the Australian people about this subject,” Longo said. “In my mind, this is a highly risky, highly volatile activity.

“My key message is to be careful of highly risky activity. And that is really sort of the heart of it, from my perspective.”

Proactive DDO

Aside from cryptocurrency misinformation, ASIC is intent on making sure the industry’s adolescent DDO regulations are being taken seriously by stakeholders.

It’s not enough just to tick DDO boxes, Longo said. Firms need to proactively get ahead of poor consumer outcomes and make adjustments on the fly.

“In the future you can expect us to look closely at the way firms collect, assess and respond to data about consumer outcomes from their products,” he said.

“It’s critical that firms respond to poor outcomes identified by making the necessary changes to their products or to their product governance arrangements. These obligations require firms to be proactive, it’s not a case of set and forget.

“Ultimately, we want to see the long-term benefits of DDO being realized,” he continued. Strong and robust compliance with DDO will support fairer outcomes for consumers and a stronger financial syste