Deconstructing digital currency and its risks

TY - JOUR

T1 - Deconstructing digital currency and its risks

T2 - why ASIC must rise to the regulatory challenge

AU - Latimer, Paul

AU - Duffy, Michael

PY - 2019/3

Y1 - 2019/3

N2 - Digital currency is a ‘disrupter’ of financial services and currency markets and as such presents new regulatory challenges. International regulatory responses to digital currency range from it being largely ignored in a few jurisdictions to outright banning in others with most jurisdictions charting a middle course of ‘wait and see’ while attempting to deal with pressing issues (such as taxation liability and potential money laundering and terrorism financing issues). This article explains digital currency, its benefits, its problems and its risks and the regulatory response so far. It analyses the extent to which the Australian Securities and Investments Commission (ASIC, the national securities regulator) may or may not have regulatory power and jurisdiction under existing Australian law and the role of other relevant regulators and institutions. It concludes that digital currency may well be a ‘financial product’ under s 763A of the Corporations Act 2001 (Cth) (though many suppliers/issuers of that product will be website operators located outside Australia). As a financial product, ASIC would also have jurisdiction over issuers and markets that trade in that product. This could easily be fortified with legislative changes to increase the certainty of this conclusion but in any event it is suggested that ASIC should test its powers. Regulation of digital currency by ASIC would add to recent moves to deal with digital currency by AUSTRAC and the Australian Taxation Office (ATO). This article argues that the time has come for Commonwealth regulation of digital currencies by ASIC as the relevant regulator. This would then trigger the obligations set out in the Corporations Act and the ASIC Act, including Australian Financial Services licensing, Australian Market licensing, standards of efficiency, honesty and fairness, disclosure provisions and possible market offences and corporate regulation generally. The suggested jurisdiction of ASIC would build on the existing role of ASIC, the ACCC, the ATO and AUSTRAC.

AB - Digital currency is a ‘disrupter’ of financial services and currency markets and as such presents new regulatory challenges. International regulatory responses to digital currency range from it being largely ignored in a few jurisdictions to outright banning in others with most jurisdictions charting a middle course of ‘wait and see’ while attempting to deal with pressing issues (such as taxation liability and potential money laundering and terrorism financing issues). This article explains digital currency, its benefits, its problems and its risks and the regulatory response so far. It analyses the extent to which the Australian Securities and Investments Commission (ASIC, the national securities regulator) may or may not have regulatory power and jurisdiction under existing Australian law and the role of other relevant regulators and institutions. It concludes that digital currency may well be a ‘financial product’ under s 763A of the Corporations Act 2001 (Cth) (though many suppliers/issuers of that product will be website operators located outside Australia). As a financial product, ASIC would also have jurisdiction over issuers and markets that trade in that product. This could easily be fortified with legislative changes to increase the certainty of this conclusion but in any event it is suggested that ASIC should test its powers. Regulation of digital currency by ASIC would add to recent moves to deal with digital currency by AUSTRAC and the Australian Taxation Office (ATO). This article argues that the time has come for Commonwealth regulation of digital currencies by ASIC as the relevant regulator. This would then trigger the obligations set out in the Corporations Act and the ASIC Act, including Australian Financial Services licensing, Australian Market licensing, standards of efficiency, honesty and fairness, disclosure provisions and possible market offences and corporate regulation generally. The suggested jurisdiction of ASIC would build on the existing role of ASIC, the ACCC, the ATO and AUSTRAC.

KW - Digital currency

KW - Regulation

KW - ASIC law

KW - Financial regulation

U2 - 10.1177/0067205X18816237

DO - 10.1177/0067205X18816237

M3 - Article

VL - 47

SP - 121

EP - 150

JO - Federal Law Review

JF - Federal Law Review

SN - 0067-205X

IS - 1

ER -