Senator raises concerns over lack of checks for crypto businesses seeking financial services licences

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Australia’s financial services regulator was queried multiple times about a cryptocurrency exchange’s use of a financial services licence that does not cover cryptocurrency.

This week Guardian Australia reported that failed cryptocurrency exchange FTX obtained an Australian Financial Services Licence (AFSL) through the takeover of a company that already held the licence – and the Australian Securities and Investment Commission (Asic) did not conduct any checks to see if FTX was fit and proper to hold the licence.

Another major cryptocurrency platform in Australia, Crypto.com presents itself as one of the most regulated crypto exchanges in the world, and is currently a major sponsor for the AFL. In 2020, Crypto.com announced it was able to obtain an AFSL through the takeover of The Card Group.

Guardian Australia has seen correspondence between Liberal senator Andrew Bragg and Asic chair, Joseph Longo, this year in which he raised concerns about Crypto.com’s representations for its AFSL.

In July, Bragg asked Asic what Crypto.com could do with its licence after a constituent had complained to him about a lack of customer support from the platform.

In a response in August, Longo replied that the licence “allows Foris GFSA” – Crypto.com’s operating company in Australia – “to provide general financial product advice and dealing services to retail and wholesale clients in relation to financial products that comprise non-cash payment products”.

Bragg wrote to Longo again in September asking if Asic could confirm that Crypto.com “is potentially creating an impression that a product or service it is offering is a regulated crypto product when it could not be?”

“If Crypto.com’s current AFSL is not the correct licence, could you please advise what steps Asic is taking to address this matter?”

Longo responded at the end of September that Foris Dax Au, an authorised representative of Foris GFSA, operates a non-cash payment facility known as Crypto.com Pay.

Longo said Crypto.com’s website outlines in product disclosure statements that the financial services are related to Crypto.com Pay, and “it does not appear that [Crypto.com] is operating under an incorrect AFS Licence authorisation.”

A spokesperson for Crypto.com said the company had gone through the normal licensing processes for the majority of the countries in which the company operates – including Singapore, the UK, and the US – but that in Australia acquiring The Card Group also gave Crypto.com the ability to launch its Visa card in Australia, given the Australian company’s pre-existing relationship with Visa.

Bragg told Guardian Australia he wanted Asic to step in and ensure crypto businesses did not deceive investors about what the licence covered.

“I am concerned businesses are holding themselves out as regulated crypto businesses in which no such licensing system exists,” he said. “Asic must ensure businesses do not engage in misleading or deceptive conduct in this space.”

The director of Swinburne’s master of financial technologies, Dr Dimitrios Salampasis, said the “lines are quite blurry” and crypto companies holding an AFSL can be misleading for both investors and consumers in general.

“It is indeed correct that crypto and digital asset companies are not required to hold an Australian Financial Services License, since no such regulation currently exists in Australia,” he said. “This can be quite dangerous because it gives the false impression to investors and consumers that they are protected, raising unrealistic expectations.”

“Acquiring an AFSL does not mean that cryptocurrency automatically becomes legal.”

Salampasis said crypto exchanges need to be careful and transparent in their wording about what the licence covers.

He said that regulation is needed.

“The further delays in terms of putting together an equitable, suitable and rigorous regulatory framework, the deeper and more serious the issues will be, and more and more consumers will be both misled and confused,” Salampasis said.

Bragg placed blame for any confusion for customers on the financial services minister, Stephen Jones, for failing to act on a Treasury consultation on cryptocurrency regulation commissioned by the former Morrison government in March this year.

The consultation was ditched by the Albanese government in favour of a token-mapping review, and it is expected that the government will introduce legislation to regulate cryptocurrency markets in 2023.

The Senate on Wednesday resolved to order Jones to provide briefings related to the Treasury consultation – as well as policy options, draft legislation, and submissions to the consultation – by Tuesday next week.

The order was supported by the Coalition and the crossbench but opposed by Labor senators.

Guardian Australia has sought comment from the office of the financial services minister and Asic.

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