Australia will soon be the first country in the world to review crypto reforms and create a regulatory and licensing framework for the cryptocurrency industry.
To date, it has been broadly unregulated despite ATO estimates that over 1 million Australians have interacted with the crypto ecosystem in some way since 2018, and findings by the ACCC’s Scamwatch that more than half of financial losses to scams are crypto-related.
The federal Treasurer Jim Chalmers recently announced the process would start with “token mapping” analysis, which will group types of crypto assets based on their technological features and underlying code.
This demonstrates Australia’s global leadership ambitions on regulation in this sector and a future-looking approach to policy development. But it is also a clear example of how regulation and compliance have lagged behind the shifts and demands of consumer behaviour, particularly related to digital finance.
As the industry and government try to catch up with consumer behaviour and how the crypto sector has evolved, it will be critical for crypto service providers to ensure they do fall behind competitors or worse, suddenly become non-compliant and unable to operate at all.
Building digital trust
The crypto industry has had a mixed reputation from the start. Many early adopters saw it as an exciting and equitable way of doing finance. But sceptics have questioned the reliability and trustworthiness of crypto operators, who have more opportunities to remain anonymous when using cryptocurrency. Adding to the scepticism is research highlighting the rapid rise in crypto scams, with the ACCC’s Scamwatch reporting $84 million lost to scams involving bitcoin in 2021, up from $27 million in 2020 and $19 million in 2019.
As the crypto sector continues to grow and evolve, competition is also heightening. One way crypto service providers can thrive in this landscape is to proactively prioritise consumers’ security and safety. This will require a heavy focus on planning ahead for the regulations to come, which will likely place requirements on the sector to manage customers’ security and safety at comparable standards to other financial institutions, such as banks.
Looking at the traditional banking sector, for example, the introduction of open banking, CDR, and other regulations following the banking royal commission forced many financial institutions to act quickly while also finding the resources to meet compliance requirements. Financial institutions that had anticipated these changes were able to act nimbly and beat competitors to offer new digital services.
The crypto sector has an opportunity to avoid this race in the months and years to come. Taking a proactive approach to building digital trust with consumers today could help streamline the costs and resources required to reach compliance with new regulations while remaining competitive as the industry landscape shifts in response to those regulations.
Avoid reputational backlash
With millions of consumers already exploring this evolving sector, many assume the customer service, regulations and compliance requirements, and privacy standards are the same as the broader finance industry. This is one of the many reasons why consumers continue to fall for crypto-related scams and are often surprised by the lack of support from financial institutions and crypto service providers when finances are lost.
As new regulations are announced and create headlines, the spotlight on the lack of regulation to date could create further negativity around the industry. Those financial institutions that cannot meet compliance requirements quickly will attract an expanded group of sceptics and potential reputational damage. Instead of being caught red-handed among non-compliant operations, planning ahead can help crypto service providers position themselves as a separate tier of financial institutions renowned for being forward-thinking, secure, and customer-centric.
It will be challenging for financial institutions and crypto organisations to keep up with the various regulatory changes and requirements as they shift. So partnering with the right industry experts and leveraging the latest technologies to take on this burden will be paramount.
A wait-and-see approach will be risky and almost mean having to play catch-up to savvier competitors when the new regulations are enforced.
Carol Chris is regional general manager at Australia and New Zealand, GBG.
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