ASIC Commissioner Alan Kirkland shows the way to crypto and digital asset regulation

“A system with limited oversight, that is opaque, unpredictable and unreliable – leading to widescale investor losses or market manipulation or abuse – will ultimately fail to thrive.”

ASIC Commissioner Alan Kirkland has detailed the Australian Securities and Investments Commission’s (ASIC) strategies on crypto and digital assets, focusing on policy, regulation, and fostering innovation.

Speaking at Blockchain APAC’s Policy Week, Kirkland highlighted ASIC’s commitment to promoting responsible financial innovation by harmonizing the pursuit of market integrity and consumer protection with the enablement of new financial products and services. He also underscored the critical role of regulation and enforcement in building trust within the financial ecosystem, including the realms of crypto and decentralized finance.

Opaque crypto and DeFi systems lead to investor losses, manipulation, and abuse

“In ASIC’s view, regulation and enforcement help to foster trust – and trust is essential to every part of the financial system – crypto and decentralised finance included. A system with limited oversight, that is opaque, unpredictable and unreliable – leading to widescale investor losses or market manipulation or abuse – will ultimately fail to thrive. 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.”

Kirkland pointed out the “regulatory trilemma” facing financial supervision, which posits that achieving consumer protection, market integrity, and encouragement of financial innovation simultaneously is challenging. However, ASIC aims to strike a balance among these objectives. He also mentioned ASIC’s Innovation Hub, which has assisted over 900 entities since 2015, including those working with crypto assets or blockchain technology, and the exploration of tokenization, including close work with the RBA on a Central Bank Digital Currency (CBDC) trial.

“Proposals to tokenize financial products and other ‘real world’ assets have been increasing recently – and we have been monitoring broader developments in this area. ASIC worked closely with the RBA on its trial of a Central Bank Digital Currency. We supported the pilot – which tested some token-based products and services supported by the CBDC – by assessing use cases and providing relief from the Corporations Act to several participants.

We have seen some banks piloting stablecoins, as a step to facilitate broader tokenised offerings – as well as proposals from financial market infrastructures. We can see significant operational and other changes that may have material flow-on impacts to financial markets – and will be increasing our focus on tokenisation going forward.

Questions we will be considering include:

  • How does tokenization 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?

Some types of tokenization will be regulated through the current regulatory regime, while others will be regulated through the Government’s digital asset platform proposal.”

ASIC establishing rules for market integrity and consumer protection

Regarding regulatory reforms, Kirkland highlighted the Australian Government’s proposals for digital asset platforms and payments services providers, including a framework that incorporates digital asset platforms within the existing financial services and introduces a new ‘digital asset facility’ product category. ASIC’s goal with these reforms is clear: to establish rules that ensure market integrity and protect consumers and investors.

“The word outcomes here is an important one. What matters most are the regulatory outcomes. While there are different approaches to regulating the crypto asset industry globally, one area of increasing cohesion is the consensus that is developing on the intended outcomes.”

IOSCO has published recommendations for crypto and digital asset markets, placing a strong emphasis on addressing governance and conflicts of interest, abusive behaviors, sales and distribution practices, and custody. The association also addressed DeFi participants and their responsibilities toward market integrity.

“As a member of IOSCO and an active participant in its Fintech Task Force, ASIC supports IOSCO’s objective of same activity, same risk, same regulatory outcome,” Kirkland said.

The ASIC Commissioner also shared insights on ASIC’s enforcement strategy, which prioritizes cases with the greatest potential for harm or deterrence. Despite challenges, including cases where the applicability of laws to crypto assets may seem uncertain, ASIC remains committed to using existing laws to address misconduct.

“In the meantime, we have already begun thinking about implementation – such as our processes and guidance. This includes a number of informal discussions with some in the industry. So, what does all this mean for the industry and people advising it on the implications of the proposed new regime?

“It is likely going to mean significant uplift in the operations of a number of industry participants. The proposal is that platform providers will need to comply with the general obligations for licensees – including operating efficiently, honestly and fairly – alongside other obligations within the Corporations Act. Some platform providers will face additional obligations, where they undertake what Treasury has called a “financialised function”. For example, if you provide the token trading function, this could mean aspects of the markets regime may apply.”