Advisers unlikely to get green light for crypto investment
The US Securities and Exchange Commission (SEC) may have given the greenlight to Bitcoin ETFs, but financial advisers in Australia will still face restrictions on advising on them, according to Global X.
Announced by SEC chairman Gary Gensler, 11 spot Bitcoin ETFs have now been deemed effective for listing and trading on CBOE, the New York Stock Exchange and Nasdaq.
This includes BlackRock’s iShares Bitcoin Trust, Fidelity Wise Origin Bitcoin Trust and the VanEck Bitcoin Trust, alongside nine other issuers.
David Tuckwell, senior product and investment strategist at Global X, which was the first Australian provider to offer a spot Bitcoin and Ethereum ETF on CBOE, said the decision meant Bitcoin could be traded on investment platforms via an ETF rather than via a crypto exchange.
According to the 2023 ASX Australian Investor Study, 9 per cent of investors had bought or sold crypto in the past 12 months. Almost a third (29 per cent) are interested in investing in crypto in the next 12 months. The median value of cryptocurrency holdings by crypto investors is some $5,100.
Adviser platforms in Australia do not connect to crypto exchanges or provide crypto trading, and several problems exist regarding cryptocurrency ETFs in Australia, including achieving a valuation and a research house rating and strict capital requirements.
There are also specific challenges related to financial advisers which make them unlikely to recommend them to their clients.
“Most advice licensees do not let their advisers give advice on crypto given fiduciary requirements on advisers to possess competence in what they are giving advice on,” said Tuckwell.
“Most insurance policies that advisers take out (i.e. professional indemnity) do not cover crypto if it is not on their approved product list.”
In a Treasury submission regarding the regulation of crypto assets in 2022, the former Association of Financial Advisers (AFA), which has since merged with the Financial Planning Association to form the Financial Advice Association of Australia (FAAA), said these challenges leave advisers in a difficult position of clients asking about crypto but being unable to answer them.
Former CEO, Phil Anderson, wrote: "This leaves financial advisers in the difficult position of often needing to discuss crypto assets with their clients, so that they better understand the risks involved, however being limited from doing so. This means that Australians, in large part, get a form of “advice” from social media channels and influencers on crypto assets. This is a source of information that is less likely to include any form of consumer protection."
A way needed to be found, he said, for competent advisers to advise on crypto without unnecessarily jeopardising or increasing the risk profile of their financial services license.
ASIC actions
ASIC noted crypto assets can be highly volatile, risky and complex, making it crucial for investors to receive accurate information. Its information sheet 225 covers matters such as offering cryptocurrency products to retail investors, how products should be structured and what classes as misleading or deceptive conduct.
Regarding the US announcement, the information states guidance overseas does not automatically translate to equivalent products in Australia and that Australia's definition of a financial product is usually broader than other jurisdictions. This means what may fall outside of the regulatory perimeter overseas may still be covered in Australia.
In a speech to the Australian Financial Review Cryptocurrency Summit in October, ASIC chair, Joe Longo, said: "Crypto must be held accountable to the same high standards we expect of everyone else. Offering services that involve new and innovative technologies, or that are built around new and innovative technologies, does not afford service providers a regulatory exemption.
"Given the trust placed in intermediaries, there must be regulation of crypto-assets and their service providers to better protect investors.
"Saying this is not anti-innovation, but the opposite. Regulation and enforcement provide certainty, and certainty promotes innovation; uncertainty holds it back."
ASIC has already taken action regarding several cryptocurrency-related issues, including against fintech company Bobbob, Holon Investments and Bit Trade crypto exchange.
Most recently, Bobbob had to pay $53,280 to comply with infringement notices in September regarding representations it made about a crypto-asset linked investment product. ASIC raised concerns about the company’s representations of the investment product had the potential to mislead consumers.
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The SEC decision was not unanimous. SEC commissioner Caroline Crenshaw said what many of us are thinking. "Bitcoin is a peer-to-peer system. Individual investors in the U.S. who want to invest in the product may already do so, either by mining it themselves or by setting up a wallet and buying it from someone else, each of which they are able to do from the comfort of their living room. That is the whole point of creating a new, censorship-resistant digital currency. So why is so much energy being expended on linking it to the existing financial system?
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