Australia: ASIC issues new guidelines on ETFs, for investor protection

The debate over the safety of cryptocurrency-backed investment products has been reignited with the launch of the United States’ first Bitcoin Futures ETF. Many other countries are grappling with the nitty-gritties of approving investment products backed by unregulated and volatile digital assets. Australia happens to be one of them.

The country’s corporate financial watchdog released a new set of guidelines earlier today. It is aimed at investor protection and increased transparency. This comes within a week of a senate committee report calling on the country to introduce new laws pertaining to digital assets that would increase Australia’s stake in the global crypto competition.

The guidelines issued by the Australian Securities and Investment Commission (ASIC) were basically aimed at how product issuers and market operators can become more regulatory compliant in relation to crypto-asset ETPs. For instance, those holding the underlying assets in a crypto-ETP will need to obtain a license. A new “crypto-asset” section has been added in the licensing applications by the ASIC for such holders.

In essence, the watchdog has given a green light to establish cryptocurrency-backed funds for retail investors. However, only products linked to Bitcoin and Ether

will be eligible for approval. This is due to the watchdog’s insistence on including only those crypto assets that have transparent pricing mechanisms, institutional backs, and a relevant futures market, leaving only the top two cryptocurrencies as considerations.

Good practices for market operators were also included in the guidance. This highlights how the investment products need to be admitted and supervised by market operators, along with how product issuers should establish and operate them.

The key areas covered by the agency’s guidance included disclosure, risk management, pricing methodologies, custody of crypto-assets, and admission and monitoring standards.

ASIC Commissioner Cathie Armour said,

“We recognize the interest in, and demand for, ETPs and other investment products that hold crypto-assets in Australia… Crypto-assets have unique characteristics and risks that must be considered by product issuers and market operators in meeting their existing regulatory obligations.”

Back in July, the ASIC had noted that a Bitcoin ETP could carry risk and the country should move forward with caution if it is to issue its own crypto-backed investment products. It had also reached out to market participants for feedback on the same.

This was in response to reports that the country’s Securities Exchange (ASX) was considering the launch of Australia’s first crypto- ETF by the end of this year and was assessing a number of ETF applications for this purpose.

The new guidelines are expected to reinstate efforts by fund managers in the country to launch a crypto-backed ETF, including BetaShares, VanEck, and Cosmos Asset Management that currently have products in development. In any case, two ETFs with crypto exposure have been listed on the local stock market, Chi-X this month, and another is slated to begin trading on the ASX in November.