05 July 2021

ASIC calls for submissions on treatment of crypto-assets as underlying for exchange traded products

This article was written by Hannah Glass

ASIC is calling for submissions to a proposed pathway for crypto-assets to be underlying products for exchange traded products (“ETPs”), listed investment trusts (“LITs”) and listed investment companies (“LICs”).  The proposal, published on 30 June 2021 in Consultation Paper 343 (“CP 343”), sets out an approach to how ETPs, LITs and LICs might offer products which comply with the existing regulatory regime under chapter 7 of the Corporations Act.

Key details

CP 343 includes proposals regarding:

  • how ETPs might meet the requirements of INFO 230 which sets out the admission guidelines for ETPs. This includes how ASIC and Australian market licensees might seek to determine which crypto-assets might be suitable as underlying assets;
  • how responsible entities (“REs”) and custodians might meet the relevant requirements to comply with their Australian financial services licences (“AFSL”) including in relation to:
    • holding assets;
    • risk management;
    • disclosure; and
    • design and distribution obligations;
  • settings for market operators and ASIC to work together to determine the requirements of an admission process and investment mandate for LITs and LICs; and
  • amendments to the AFSL application to facilitate the creation of a scheme with a crypto-asset as an underlying asset.

ASIC is also seeking feedback on the likely compliance costs, effect on competition, and other impacts, such as costs and benefits, of its proposals. 

In addition to the proposal, CP 343 includes statements regarding the breadth of crypto-assets, technological standards for custody, and risk management standards for exchanges which may be of interest to the broader crypto-asset and blockchain ecosystem.  

Why does this matter?

ETFs have started to gain traction in major markets – including recent approvals in Canada.  Some in Australia have been seeking to do the same which would require compliance with Australia’s principles-based regime.  

The proposals appear to seek to assist stakeholders to understand how they might navigate the complexity of the Australian regulatory regime.  The consultation process is designed to bring together all stakeholders, to that any policy might have the benefit of their knowledge and experience.

Looking ahead – is the Australian regulatory regime changing?

No.  CP 343 is not seeking submissions on, nor does it consider how crypto-assets ought to be classified or regulated.   Aspects of this are being considered by the Senate Select Committee into Australia as a Technological and Financial Centre.

In the meantime, the key areas to bear in mind when engaging in the crypto-asset and blockchain sector are:

How do I get involved?

Submissions to ASIC are due 27 July 2021. 

If you would like to discuss this, or any crypto-asset or blockchain initiative in Australia or beyond, please do not hesitate to reach out to one of your KWM contacts.

Key contacts

Data Central

Have you checked out our new Data Hub? Data Central contains a range of resources to help our clients minimise the legal, regulatory and commercial risks this data-driven environment presents and ensure that its full value is being realised.

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