Over three million people in Australia were found to use cryptocurrency assets, a study by the Australian Cyber Security Industry Advisory Committee found. Yet, digital assets are scarcely regulated in Australia. This is dangerous to clients, for multiple reasons. Since 2021, several bodies in the Australian Government have begun trying to create a comprehensive legal framework for the assets. Another step towards that was taken with the recently announced licensing framework for crypto companies. Here is everything you need to know about these recent developments:
Australia’s longstanding efforts to regulate crypto trading
During 2022, we have seen multiple high-profile crashes of some of the supposed leading companies in the crypto industry. Of course, some of these companies seem to have been implicated in criminal activity, as the ongoing criminal process against FTX’s CEO suggests. However, some failed on their own. A set of strict rules would have prevented thousands of their clients from losing their investments in the firms. In fact, stricter requirements for them could have prevented bankruptcy in the first place, because there are no requirements for crypto token issuers to have any kind of minimum liquid capital. That is why these high-profile crashes took place after a bank run on the now-defaulted companies.
The Australian government long realized the need for comprehensive regulation over the markets. In March 2022, it published a paper which noted that its regulatory framework on crypto needs to change. That is because the regime regarding companies which grant access to the crypto markets, but do not issue tokens – so-called Crypto Asset Secondary Service Providers, can be confused with other, more traditional institutions. It could seem like a Forex broker-dealer and a crypto broker-dealer are the same thing, and so, they are regulated the same way in Australia. This is not the case, at the time of writing. The paper highlights the need for the introduction of additional rules for these secondary service providers, as to ensure their clients are protected from risks.
Furthermore, the paper states issues arise from the many niches that crypto assets can fit these days. Consequently, there are a lot of various tokens, which are variously similar to conventional financial products. Therefore, deeming all of the assets to be synonymous with these more traditional products would be inaccurate. The paper goes on to propose a solution to this – digital assets should be evaluated individually and classified in several categories. Some, resembling traditional assets would simply have existing regulation extended to them, and other, more novel assets would go under a different regime. It began this effort in August 2022. All crypto assets are expected to be “mapped”. In any case, the paper strongly opposes the idea of mixing the regulation of crypto assets with the rules that would be in effect for tokens.
2023 – the year when Australia regulates crypto?
This all leads us to December 2022, when the Australian Treasury came out with a statement, outlining the changes it would pursue regarding the crypto markets and their regulation. In it, it was claimed the high number of Australian crypto users makes it necessary to enact regulation sooner than later.
This can be done after the finalization of the crypto asset mapping initiative. It is supposed to be completed by early 2023, the Treasury claims. Following the publishing of the results of the mapping, the Australian government will be consulting how to proceed with the assets it determines need to be licensed. Others, which it deems more closely resemble traditional financial products, or are based on such, will have the existing rules applied to them. Since the press release underlines the urgency of accepting this new regulatory framework, it seems possible for it to be finalized before the end of 2023.
The efforts to modernize Australian market regulation
These efforts are a part of a larger bid among the Australian authorities to modernize the financial industry of the country. As claimed by the Minister for Financial Services, Stephen Jones, the regulatory regime of Australia has not kept up to date with global trends. He states the previous government has “sat on its hands” when it comes to regulation.
The proposed sectors in which he seeks to innovate are the payments industry, as well as setting Buy Now Pay Later regulation. There is also a need to revitalize the financial markets infrastructure, which the government will pursue as well. One way this could be done is via expanding the powers of already existing regulatory bodies. The two which could see such increases in their responsibilities are the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia. This statement came out the same week when the ASIC, working together with the US secret service, managed to nab an incredibly wide crypto scam.
ASIC busts AUD 100 million scam
The scam was conducted by four Chinese nationals which had come to Australia and obtained licenses with its regulatory body. The ASIC oversees a variety of markets. For instance, the scammers provided their services as AU licensed forex brokers, as well as several other crypto-related firms. In total four companies were registered, one for each scammer, with the goal of laundering the money from their schemes and appearing legitimate to their victims. Following their arrest, a total of 22.5 million Australian dollars was seized from their bank accounts. There were a total of 24 accounts that were used, which we know of so far.
The scam these people ran was disturbingly efficient and sophisticated. For instance, they knew not to target Australian victims, because that could end up getting the attention of the authorities there much faster. Instead, the majority of their “clients” could be found overseas, in the United States. It was precisely this which led to their arrests – the US Secret Service notified the authorities in Australia of the scam, in August 2022. Following close cooperation between them and the Service, the warrants for the scammers were issued. Two of them tried to flee, but were caught on their way to a flight headed towards Hong Kong.
The way the scammers interacted with their victims is also highly disturbing. They were able to fleece them via social engineering – a new trend in online fraud. They approached their marks via online dating websites and offered access to lucrative investment opportunities. The reason this kind of scheme is so dangerous is the exploitation of your trust in someone you think is reliable. The scam model has another, less pleasant name – pig butchering. Once a relationship was established, it proceeded to the next point.
The fraudsters directed their clients to several trading or investment platforms, some fraudulent and some legitimate. However, all of them were manipulated, in order to get the most of their markets. These scams are getting more and more common, and you need to stay away from anyone who you suspect might be trying to engage in social engineering with you. There are several clues for that, with the most prominent being the fact they present themself as either a Forex trader, crypto investor or another such figure. They do so unprompted and claim to have obscene return rates. Then, you are offered to join in on their trading activity. Stay away from such people when you encounter them on websites, otherwise unrelated to Forex or crypto trading.