The unregulated state of the crypto-asset investment space, including problems with unlicensed advice, is grounds for the federal government to build a regulatory framework, according to the SMSF Association.
Responding to a government proposal paper, the industry body stated its concerns in regards to investing in digital assets for SMSFs also applied to investors in general and regulation was needed to address asset ownership, fraud and inappropriate advice.
“Issues arise due to the lack of certainty on the existence, title and valuation of these investments. These are critical elements not only for the completion of the annual SMSF audit, but also for SMSF investors more generally,” association head of policy and advocacy Tracey Scotchbrook said.
“Where reports are made available to investors, these are generally in the form of an Excel spreadsheet or CSV data file. They lack crucial details, certainty, substance and are unreliable.”
Scotchbrook noted the current lack of regulation meant investors were exposed to potential fraud without recourse or redress, despite crypto and digital assets being sold to retail clients who normally would be covered by prescribed protections under the law.
“Of concern is the emergence of inappropriate selling practices involving digital assets. Some of this activity has included the recommendation to invest via a SMSF,” she said.
“The current lack of regulation enables this type of activity to occur unfettered and unchecked. The targeting of retail clients in this manner is concerning as many will not have the level of knowledge or sophistication required to fully understand their exposure and the risks associated with these unregulated investments.”
She added the current regulatory environment also prevents financial advisers from providing advice on crypto and digital assets due to licensee prohibitions and the lack of cover for or exclusions in professional indemnity insurance policies.
“We would therefore welcome measures that seek to build an appropriate regulatory framework to improve market integrity, protect investors from inappropriate activity and allow them to obtain independent professional financial advice,” she said.
In releasing the proposal paper on 16 October for consultation, the government stated it planned to introduce a regulatory framework “to address consumer harms in the crypto ecosystem while supporting innovation”, which would apply to digital asset platforms that had similar risks to investment vehicles that currently operate in the financial system.
The consultation period for the proposal paper ran until 1 December.
