I am here as Chair of what was the Senate Select Committee on Financial Technology and Regulatory Technology.
We were due to table our final report last week, but theSenate voted to expand the scope and length of the committee to further improve our position as a global financial and technology hub.
Our name has been changed to the ‘Select Committee on Australia as a Technology and Financial Centre’, and we’ve been extended to the end of October. We will however produce the final report of the FinTech Inquiry very shortly.
Our work so far has clearly shown Australia is well poised for rapid growth in technology to attract investment and create jobs.
I see this as an ideal time to widen our scope and explore new opportunities for Australia as a technology and finance centre arising from the COVID-19 pandemic.
I believe it is critical to use this time to consider opportunities in the following areas:
1. Crypto currency and digital assets
3. Instances of corporate law holding back investment
4. Replacement options for the Offshore Banking Unit
When we first applied our investigative lens to the digital asset sector, we expected it to be one of many of the exciting developments in Australia.
But it has become clear that blockchain, and its attendant fields of digital assets and cryptocurrency, represent an altogether different challenge for policy makers.
As such, this committee is not done yet.
As a lawmaker, I want to assure you that I recognise three things:
First, the tremendous and expansive opportunities posed by digital asset technology.
Second, the distinct regulatory challenges which it presents.
And thirdly, your need as commercial operators fora regulatory environment which is clear, transparent, predictable and flexible.
The opportunity presented by digital assets
It is difficult to overstate the economic benefits of opportunity in this space: notices of incorporation, licensing, land titles, electoral rolls, official records of births, deaths, and marriages, and the famously cumbersome Personal Property Securities Register.
Some of this is already underway:
One of Australia’s greatest unsung exports is the Torrens system of title-by-registration. One hundred and sixty years after Sir RichardTorrens implemented this system in the Colony of South Australia, it is now the norm in sixteen countries and several US states. The Republic of Georgia has taken this system into a new era with a blockchain title register.
Closer to home, the RMIT Innovation Hub is working with growers, the Queensland Government, and the tech sector, to introduce blockchain water rights trading.
The Australian Border Force is trialling the use of blockchain to simplify compliance systems for cross-border trade.
In a partnership with their Singaporean counterparts, digital verification systems are being tested across the intergovernmental ledger for electronic trade documents, such as certificates of origin.
The problem is that there is not a clear policy framework, which we can’t leave to regulators - it is not their job to make policy. That is up to us, the policy makers elected by the people.
A driver of the problem is that blockchain is a new form of property right.
It is not, of itself, a security, a share, a bond, personal property, or a contract. It may include these aspects, it may draw upon these frameworks, but to pigeonhole it into these arenas is an ultimately futile exercise.
In the absence of a set of regulations which recognises the distinct character of blockchain, that is what regulators are being forced to do.
The status quo, according to ASIC’s current guidance, is if a blockchain product ‘fits’ into the existing taxonomy of schemes and products, it will be subject to the appropriate laws and regulations.
The problem is that neither the regulator nor the regulated have any clarity about whether these products ‘fit’ into this scheme. The answer to the question can often mean the difference between acting un lawfully or providing a legitimate business.
As a result of the lack of a policy framework, we are seeing digital asset businesses and FinTech businesses being de-banked.
The absence of a legitimate regulatory framework for blockchain has made it harder to effectively target pernicious uses of these products. In some cases, Australian banks are avoiding dealings with crypto assets altogether. Regulators such as AUSTRAC do not have clear guidance on distinguishing between the legitimate and illegitimate uses of these products.As a result, we are seeing an immense reticence among financial institutions in dealing with these products.
Not only does this mean that our financial sector is being cut off from this opportunity, but it makes it harder to track and isolate instances of digital assets being used unlawfully. A sector-wide‘ chill’ means that law enforcement is flying blind when it comes to distinguishing legitimate from illegitimate uses.
We don’t tell banks who to bank but we will step in to provide policy certainty where it is lacking. This is the separation between the market and policy issues.
Canberra doesn’t solve market issues. We don’t tell banks to supply finance to a particular project. We set a policy framework based ono ur governing philosophy.
We just can’t have a situation where start-ups just don’t know where they fit in when it comes to characterisation, tax implications or ASIC’s position.
This will drive them to other jurisdictions.
The uncertainty also means that few banks, and none of the majors, are willing to provide banking services to the cryptos.
They feel there’s not enough policy framework to give them confidence to bank these companies and that is something I am keen for us to fix.
Governments in all major economies are acting decisively to remedy this gap
Last year, the European Commission issued a consultation draft of a comprehensive securities law for Crypto-Assets (MiCA).
The European Central Bank is looking at proposals for a digital euro. The Financial Conduct Authority in the United Kingdom has a crypto-assets taskforce and has issued interim guidance on the regulation of these assets.
However, what should give us the most cause for concern, is that the most comprehensive framework for the regulation of digital assets is right on our doorstep: in Singapore.
As of November 2020, 234 blockchain companies were operating in Singapore. Recruitment firm Robert Waters said it has seen a 50%increase in the number of roles from 2017 to 2020 in the blockchain industry.Singapore is the second most popular country in the world for Initial CoinOfferings. In the meantime, anyone seeking to embark on an ICO in Australia receives this exceptionally vague guidance from regulators.
Singapore has long accepted this. The Payment ServicesAct (2019) empowers the Monetary Authority of Singapore to act as a securities commissioner in respect of crypto-assets.
On 17 April 2021, Canadian regulators approved the listing of two crypto asset ETFs. Canada’s central bank has collaborated on a research initiative called Project Jasper “to understand how distributed ledger technology could transform the wholesale payments system”. Canada is also developing a comprehensive framework for the regulation, taxation, and exchange of digital assets.
The Brain Drain
We are aware that regulatory uncertainty is forcing crypto entrepreneurs to other jurisdictions. Not just Singapore, but alsoGermany and Britain.
I want to assure you that the committee I chair is preparing to create a digital asset plan for Australia to tackle regulatory haziness and the lack of guidance from ASIC and the ATO on how digital assets will be treated.
We know that Australia is punching above its weight with several FinTech unicorns and more than a dozen decent sized projects that are receiving global attention.
But to put it bluntly, I don’t want them trundling off toGermany or Singapore and taking with them hundreds of high paying tech jobs and millions of dollars in investment because it’s too hard or too expensive or too risky to do business at home.
As a forward-looking country we don’t want Australia to be a backwater, we want innovation here.
A proper and comprehensive regulatory framework will require more than simply adjusting regulatory practices.
While the work of the Committee is ongoing, it may be that creating a workable regulatory framework for digital assets will require legislative changes at the higher level.
This may not be remedied merely by regulators shifting their practices and internal guidance, or even by ministers issuing delegated legislation under existing acts.
If we want to recognise the distinct nature and status of the assets, it could require changes which are more fundamental.
The magnitude of this challenge is why this committee could not, in good conscience, have completed its work within the previous parameters.
That is why we have extended the deadline with a distinct focus on this evolving arena. It is why we want to hear from you, the industry, on how the government can help you. We do not have the precise policy prescriptions.
We need your ideas to better identify the opportunity and the policy settings required to attract and maintain innovation in Australia.That is the key to more choice and jobs on these shores.
Media: John Mangos 0401 392 624