APRA details its crypto expectations

By Maja Garaca Djurdjevic

April 22 2022
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Banks have received a letter from APRA instructing them on the regulator’s expectations around crypto-assets.

The prudential regulator has issued a letter to regulated firms on how it expects them to manage their dealing with digital assets, including stablecoins and crypto-assets.

In a statement on Thursday, APRA confirmed that it expects all banks and other regulated entities to adopt a “prudent approach” if they’re undertaking activities associated with crypto-assets, and ensure that any risks are well understood and well managed before launching material new initiatives.

Earlier this month, while speaking to the American Chamber of Commerce in Australia, APRA chair Wayne Byres, confirmed that the letter will not introduce new regulatory requirements.

“In the immediate term, we would like to give regulated institutions more clarity on regulatory expectations,” Mr Byres said.

“Much like our approach to climate risk, its underlying message is primarily one of: 'by all means innovate, but proceed with care and in full knowledge of the risks',” he continued.

What the letter asks of regulated entities is that they conduct “appropriate” due diligence and a “comprehensive” risk assessment before engaging in activities associated with crypto-assets.

They’re also asked to apply robust risk management controls, with clear accountabilities and relevant reporting to the board on the key risks associated with new ventures.

“Entities also need to ensure they comply with all conduct and disclosure regulation administered by ASIC. This will require robust conduct risk management and consideration of distribution practices and product design, as well as consideration of disclosure,” the letter reads.

When unclear on prudential, disclosure of conduct requirements and expectations, entities are asked to consult with APRA and ASIC.

The Australian government recently proposed new crypto-asset licensing requirements. In essence, the government has suggested that the most appropriate subject of regulation are the crypto-asset secondary service providers, which interact with consumers and allow them to engage more easily and seamlessly with the crypto ecosystem.

Speaking at Senate estimates at the time, financial services minister Jane Hume defended the government’s position, which has often been criticised for its tardiness on the issues.

“What we have said is that we’ll regulate the intermediaries, the third-party providers, the brokers, the custodians, and the exchanges, so that there is an equivalent of a tick of approval on these third parties through which crypto currencies are traded or held or exchanged,” Ms Hume said.

“That way, Australian investors can have a certain level of confidence that what they’re investing in is real.”

APRA sets roadmap

The prudential regulator also confirmed it is developing “longer-term prudential framework” for crypto-assets in consultation with other regulators internationally.

In a message to banks in particular, APRA said that the Basel Committee is consulting on prudential treatment for their exposure to crypto - a consultation which is expected to provide the basis for internationally agreed minimum standards.

The regulator itself plans to launch consultations in 2023, following the conclusion of the Basel Committee’s undertaking.

It also aims to release a new draft prudential standard for operational risk management, covering control effectiveness, business continuity and service provider management, mid-2022.

“There will also be a range of developments in the regulatory framework for crypto-assets and payments more broadly in the period ahead,” APRA reiterated.

“APRA will continue to closely monitor industry trends and emerging risks associated with crypto-assets, engage with other regulators domestically and internationally, and provide further guidance as required.”

About the author

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

About the author

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

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