Crypto regs could add strain to already stretched advisers: FSC

Responding to ASIC’s consultation paper on proposed updates Information Sheet 225 Crypto-assets (INFO 225), the Financial Services Council (FSC) has cautioned against increasing the regulatory burden on financial advisers.

Acknowledging that investments in digital assets can be volatile, the FSC said they are also “becoming increasingly mainstream” and can “have a place in a well-diversified portfolio for those investors who seek exposure to digital assets”.

The draft update for INFO 225 outlines that “recommending or stating an opinion about a digital asset” may be financial product advice, depending on the circumstances.

In response to this, the FSC has argued that ASIC “should provide greater clarity to financial advisers on the circumstances in which they can safely advise their clients to invest in digital assets”.

“The FSC acknowledges it is important to place prudent limitations on who can and cannot provide financial advice regarding digital assets that are in substance financial products,” the submission said.

“The FSC also notes that the number of financial advisers in the Australian market has fallen dramatically in recent years. The cost of professional financial advice is high and many Australians already find themselves unable to obtain financial advice regarding more traditional financial products.

“This may be exacerbated if financial advisers also become a major conduit through which investors access digital assets. Some financial advisers and AFSL-holders do not currently possess expertise related to digital assets and may require time to upskill if the financial advice industry was to be expected to step up to such a role.”

While the FSC pointed to the highly anticipated second tranche of the Delivering Better Financial Outcomes (DBFO) reforms as potentially easing some of the strains on financial advisers, it added that digital assets are far from the focus of the legislation.

“Notwithstanding the benefits of increased professional advice for Australian investors in digital assets the current program of reform to increase the supply of financial advice is, at present, focused primarily on ensuring consumers can better manage retirement planning and other savings goals where traditional investments and assets are often more prevalent,” it said.

“It is important for ASIC to ensure that financial advisers have the clearest possible understanding of their legal obligations in this area.”

In order to achieve this, the submission argued for a staged transition to any “revised regulatory expectations” around digital assets that would take the tranche two advice reforms into account.

“When appropriate, this might also include investigating the merits of a dedicated regulatory guide or information sheet to assist financial advisers and licensees with understanding their obligations concerning digital assets,” the FSC said.

“It would also be helpful to industry if INFO 225 could be updated to provide an example concerning financial advisers that gives some guidance on the types of scenarios where an investment allocation to digital assets is likely to comply with personal advice obligations including the best interests duty.”