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Select Committee on Australia as a Technology and Financial Centre
06/08/2021
Select Committee on Australia as a Technology and Financial Centre

BACINA, Mr Michael, Partner, Piper Alderman [by video link]

VALLAS, Mr Steve, Chief Executive Officer, Blockchain Australia [by video link]

WHITE, Ms Chloe, Managing Director, Genesis Block [by video link]

Committee met at 13:30

CHAIR ( Senator Bragg ): I declare open this public hearing of the Senate Select Committee on Australia as a Technology and Financial Centre. This is a public hearing and a Hansard transcript of the proceedings is being made. We are also broadcasting this hearing live via the internet. I welcome everyone here today. Before the committee starts, I would like to remind you all that in giving evidence to this committee you are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee. Whilst the committee prefers evidence to be given in public, under the Senate's resolutions witnesses have the right to request to be heard in private session. If you would like to have any of your evidence heard in camera, please let the committee know. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist upon an answer, having regard to the ground which is claimed. If the committee determines to insist upon an answer, a witness may request that the answer be given in camera. As noted previously, such a request may be made at any time. Information on parliamentary privilege and the protection of witness has been provided to you as part of your invitation to appear. Do you have an opening statement, Mr Vallas?

Mr Vallas : I do. I'd first like you to thank you for the opportunity to speak here. We gave testimony on the second issues paper. When we had that conversation you asked me whether Australia was doing well and my response at the time was that we were well placed. My position a few months later is that we are still well placed but we've fallen behind. I think the material that has been presented in the submission reflects the fact that jurisdictions are moving quickly to establish some real success in this space and we haven't moved quite as quickly.

Fundamentally, the challenge for us has been that we lack guidance. We have not been provided adequate guidance with respect to regulatory frameworks as they currently exist. Much of the material in the submission seeks to seek out that guidance directly from regulators. I recognise there might be reasons why we've moved slowly, but I don't believe those reasons are adequate in the current environment, particularly in the context of all the material that reflects what is happening globally. There is also a narrative that continues to be pervasive, which is that it is a bit of a Wild West. We resist that narrative on the basis that we can happily say that the industry is seeking out clarity. We are very deliberately asking for the regulators to engage with us, publicly and privately, so we can have a real sense of where the regulatory perimeter currently lies and whether or not it is adequate for where we want to be going forward.

I'd also add, from our perspective, that the approach that has been taken is a very defensible, reasonable one. We want a graduated, fit-for-purpose regulatory framework to be developed. In order to do that we very quickly recommended things that can be started, implemented and considered concurrently. We have suggested that there should be a safe harbour provision enacted, with an appropriate period of time for transition. We've also said that we want a working group which includes regulators from across the country to come together and have an open conversation about this subject matter. Importantly, as part of that working group, we think we should run a token-mapping exercise. We should talk about these products, digital assets and tokens, and we should talk about what their properties are. It is something that has happened globally. We've found amongst our members here that it would be a bit foolish to make a decision to categorise things one way or another quickly without having had that conversation which has largely been absent from the jurisdiction.

I would also say that, with respect to the things that should and will take a bit longer, we think consideration should start to be given to the modelling of an AFSL-style regime so that advice can be provided to give consumer confidence and consumer protections elevated status. With respect to a market licence, most of this technology will pose challenges for what the existing frameworks can deal with and we think that technology needs to be given very specific consideration.

There are lots of other recommendations in the submission, but largely they build on the matters that I've already raised. They generally include bringing the ATO, AUSTRAC and ASIC closer to the conversation. We can talk about those in the questions and answers.

I would like to single out as well the issue of banking. It's something that we've consulted with our members and, more broadly, businesses that associate with our members about. We would like the banking industry—and we know this is not the remit of the committee—to let us know what it is about digital assets and cryptocurrency that potentially make operational challenges for business so pronounced that businesses are being debanked or not being offered services. That is something we would like to put on the record.

To close out these points, from our perspective, there is an opportunity. It is presenting. It is one that needs to be taken consciously and deliberately. We don't believe—again, this is in the context of the material that we've put together that shows what is happening globally—that we can accidentally be successful in this domain. We as a country need to choose through government and through the implementation of a regulatory framework a path that says, 'We are interested in this subject matter and we are committed to getting great outcomes for Australians and Australian business.'

CHAIR: Thank you, Mr Vallas. That's very useful.

Senator MARIELLE SMITH: Where does this categorisation of it being the Wild West come from, do you think?

Mr Vallas : I think it generally has been tied to some legacies related to the ecosystem. I think when the ICO boom happened in 2017 and 2018 there was a decision by governments across the world to wait and see. It obviously was the case that a lot of those projects were not very good and ultimately moneys were raised quickly and moneys were either lost or spent but we didn't establish much of a framework at that point in time as to what we should be doing. We can look historically and say, 'That is what 2018 and 2017 looked like,' but the landscape as we see it today is entirely different. We don't see an appetite within Australia for ICOs. We don't see the regulators comfortable allowing that to happen again. So we are in a new chapter, but the narrative has persisted. It has been the case when people don't understand the space well for there to be the tendency to lean on it being the Wild West, nefarious and with bad actors. All I can point to are the facts that have emerged. Businesses that do things like track transactions on chain are telling us that fraud, nefarious actors and bad behaviour is a very, very small percentage of transactions. But it is a persistent conversation and I expect it will continue.

Senator MARIELLE SMITH: How do you go about changing that perception?

Mr Vallas : Personally, I have been having many, many conversations. It is a difficult subject matter to get people across the line on in a single, one-touch conversation, in a webinar or in reading a document. It requires confidence to be given incrementally. This is part of the reason why we seek out regulators. We are persistently saying, 'There is no benefit to supporting things that are related to scams or appear to be related to scams; why don't we get together and have this conversation?'

We are on the record as saying to the regulators, 'Can you please provide us with the information that gives you the sense that this is an industry that has too many people who are doing the wrong thing?' I'm yet to be provided that information. I ask consistently; I'm yet to be provided. Industry will not benefit from doing anything other than turning the lights on in every room that we're in, which is what I've committed to do and what I do day after day.

Senator MARIELLE SMITH: Why aren't you getting that information from the regulators?

Mr Vallas : Probably best to ask the regulators. I don't know. We know that in some meetings earlier in the year ASIC made it clear that they had concerns with respect to scams. They made that clear in front of the Australian fintech association and us. We have asked for the material. I think I have asked for that material every month—in recent months, probably a couple of times a month. I'm yet to be provided. The inconsistency, from my perspective, is: if this is of such concern, if this is a narrative that poses real issues, then why would the industry not be provided with that information so we can address it? I don't have the answer as to why I haven't been provided that information yet.

Senator MARIELLE SMITH: In terms of your representation of industry as Blockchain Australia, how many would you represent? What proportion of industry would you represent?

Mr Vallas : The nature of the technology as I define it is very broad. The organisation has a very wide constituency. We have education businesses, tertiary education businesses and a wide variety of startups in all sorts of pursuits. We represent 20 to 25 DCEs, the digital exchanges—I think almost exclusively the largest exchanges in the country. We also have very large enterprise businesses and big consulting businesses. It is a very wide constituency, which allows me to get a real sense of where the intersections are with what we'd consider day-to-day business as usual. It's not a narrow definition, which, again, is part of the problem I face. If you narrowly define it, you see a narrow thing. I see our businesses in every single business room I enter, and rarely are they blockchain rooms narrowly defined.

Senator MARIELLE SMITH: Not just in your submission, but in a number of submissions, there has been criticism around the interaction with regulators and the lack of a structured conversation or opportunity to engage and actually work through some of these issues. But in my briefs I've got references to various taskforces and working groups. It sort of looks like the regulators are doing something. Can you talk through your experience of trying to engage with the regulators, where you see some engagement happening and what you think needs to happen going forward for that engagement to be meaningful?

Mr Vallas : Absolutely. One of the key recommendations is a working group that includes all the regulators who are or should be interested in this space. All the conversations are siloed, and this is one of the dilemmas. Not only are they siloed; they're behind-closed-doors siloed. When we speak to the regulators, they will tell us that they're engaging with industry. We are not privy to what those engagements are. We are not privy to any direction that comes out of that. We are not receiving the guidance that stems from it. It's effectively a black box. We say, 'Here is the view of industry,' and it is absorbed, but we get nothing back.

I have to say, thankfully, that the relationships have improved and there is a willingness. I've been dealing with Treasury recently, and I'm grateful that they're showing greater interest in this subject matter and a willingness to do that. I spoke to the ACCC. AUSTRAC has been a great relationship. With ASIC, it has been a little bit challenging at times. I think the reality is that the relationship is as good as it's ever been, but importantly people do look to ASIC often for guidance. At the moment, we can't say to our members where we think the regulatory perimeter is or is likely to be, because we just don't have that information. In order to address that, we should no longer silo the conversation. At least in part we know government regulators will want to talk amongst themselves, but we've no jurisdiction that is moving forward that hasn't been very much on the front foot to talk to industry in a roundtable sense. We don't want to sit there just for the sake of it. What we do want to hear are views that we can take back into business and encourage people particularly to invest. We want locals to continue to invest. Inbound investment is a particular challenge in circumstances where I cannot say, 'This is where we think you land on the regulatory perimeter.'

Senator MARIELLE SMITH: Have you had any engagement at a ministerial level on any of these issues?

Mr Vallas : Largely the engagement to this point in time has been with the department of industry, with Minister Andrews when she was there. I understand Minister Porter is giving some consideration to this. But it hasn't extended much beyond the department of industry. They have done some great work with respect to the national blockchain roadmap. Again, that aided in putting this subject matter on the national agenda. But what we're finding increasingly is that these conversations are now shifting into Treasury. On the engagement with the ATO, for example, the industry would like [inaudible] clearer guidance with respect to where we find ourselves today. We expect then they will brief into ministers accordingly. To this point in time, there hasn't been great ministerial adoption and consideration of the subject matter that we've seen.

Senator MARIELLE SMITH: Surrounding all of this work are some genuinely held concerns for consumers in interacting with this technology and cryptocurrencies—how they engage and at what level. Obviously there has been some quite widely reported scam behaviour and nefarious behaviour. What do you think the key challenges are from a consumer protection point of view? Where do you think the problems and the regulatory deficiencies may be in terms of consumer protection? Do you have any ideas on a way forward which could perhaps give regulators or others around this industry some ease?

Mr Vallas : I would first make the point that, when we have the conversation, it's often conflated. When we talk about scams, there are scams that use language related to the industry and there are scams that take advantage of people's failure to understand—that's the scam landscape, as far as I'm concerned. Then there are chain scams or people who seek to move things using the technology. That second category is largely tracked. Businesses like [inaudible] Chainalysis and Elliptic can literally track and trace these sorts of things. I go back to the first part, where the primary challenge is one for retail investors who don't know any better. Advice is lacking. One of the suggestions here in the modelling of the AFSL regime with respect to this is to encourage investors to go to people who understand the space and can give financial advice. That's absent. We're leaving an enormous vacuum so that TikTok influencers can give us advice about this subject matter. We want to encourage the businesses that seek to opt in and give advice that is considered. That's absent. That's an obvious consumer protection that we think we should move towards.

The general awareness around scams—again, if we conflate them, we can't address them. When I spoke to the ACCC recently about this subject matter, they talked to issues like romance scams. Romance scams affect cryptocurrency in the same way they affect everything else You start with a romance scam and then you tell someone, 'I've got a great investment product.' There are really rudimentary things that we could be doing to address the issue, but we're not being engaged directly to do that. As an industry there is no-one within our constituency who doesn't want that to stop. That failure to engage in that regard is problematic. We expect that consumer protections as they exist should be applied to this segment. Part of the process that we're saying that is the token mapping—we should be drawing in protections that apply. But at this point in time we don't even know where most of these things fit.

We believe everything we've said is consistent with consumer protections being elevated. The industry does not benefit from scams. That's what I keep on saying. It hurts us because it's too easy to point to things that are not well known or considered and to say it's part of the industry. It's not. I don't represent multibillion-dollar businesses that seek to perpetuate scams. In fact, they all suffer from it. It's a challenge that we think we need to confront in a more considered way. I'd add to that, from the tax perspective and the ATO: we just don't have enough guidance in relation to it. One of the other issues around it is people talking about tax evasion. There's very little guidance that's been provided about how these assets should be treated. That's another thing we think, if we get on the front foot with, will aid and dull those concerns very quickly.

CHAIR: You have to wind up.

Senator MARIELLE SMITH: Can I have two more questions?

CHAIR: Go ahead.

Senator MARIELLE SMITH: If a mum-and-dad investor wants to make an investment in some form of cryptocurrency—they may have read an article, are interested in it, want to engage or want to purchase it—where do they start? How do they do that? Who do they see for advice? Where do they find guidance on the internet about how they might do that? Is there any advice for them from government? I'm trying to understand at that grassroots investor level what their interaction is like with these products and where the gaps or risks might be in that exchange.

Mr Vallas : They start where most people start: they just go to the internet and follow the advice of people who they probably don't know. They go down that rabbit hole. What we've sought to do as the mechanism to give some greater confidence around it. For the exchanges that are represented as our members, there is a code of practice, a code of conduct—again, a v2 that we're rolling out shortly. We're trying to give confidence by showing brands that associate themselves not just with us but put themselves out as good citizens doing the right things and communicating properly.

But at the moment there is no natural path. Your observation is the right one. There is no website that the government points to that says, 'If you would like to invest in a category that is growing, that will continue to grow and that shows real interest, particularly to millennials'—that's where they've initially gone. They've embraced it much more. They understand what digital first looks like. There is no obvious place. There are no resources that government can provide. There's nothing I can point to that says, 'This will give you confidence that this is who you’re dealing with.' Instead, you are lumped into a category that says, 'Here are scams you should look out for.' But it doesn't guide people towards good investment decisions. We are at that maturation point.

Senator MARIELLE SMITH: If they want to buy shares in one of the big four banks, you can contact a stockbroker or do it in a formal way through a formal mechanism and seek formal advice. Are there brokers who help provide guidance here, or not?

Mr Vallas : No, the people who go into the exchange—

Ms White : Yes, there are brokers, but, because of this issue with the AFSL, they're not able to de-risk their clients' portfolios.

Senator MARIELLE SMITH: On debanking, which is something you mention in your submission as being quite pervasive and endemic, what are your ideas of how that can be resolved? What needs to happen?

Mr Vallas : I would like to bring this subject matter out into the light. I read the submissions put by some of the banks with respect to issues paper 3, and it talks about operational issues. We understand operational issues aren't things that should be shared, but it also talks about risk matrixes, which we think, in broad terms, we could be given some insight in relation to.

If they talk deliberately about KYC and AML issues, we want to have the conversations. There is no framework that would suggest that these businesses are meeting or not meeting a threshold. What we've seen in some of the submissions is that, ultimately, they receive a letter with no notice that says, 'We're no longer providing you banking services.' Then, behind that letter, they say, 'Well, we can't tell you why; it's the just the case.' We just want to have a frank situation that says: here's where we're at. If the banks do not want to support this industry, I think that should be made clear. I don't want the opaqueness. I don't want to be giving hope to businesses here. Australian businesses need the support of the financial institutions that, ultimately, play a very, very significant role in our economy. At this point in time, they aren't afforded that opportunity. I will say, in a couple of the meetings I've had with a variety of regulators, we talk about this being an anecdotal problem. It's not an anecdotal problem. It is a widespread problem. It's difficult for members to say on the public record that they have had challenges with their financial institutions, for fear that they will make even more challenges for themselves. They can't out themselves in circumstances where they think they're going to give themselves more of a headache. So we just welcome an open dialogue at some point in time.

CHAIR: Picking up on that theme, Mr Vallas, effectively what you've recommended is that we put in place a framework here for licensing markets, an arrangement for custody and a mapping exercise for tokens—so a much more sophisticated regulatory environment. If we had that environment in place, do you think that that would stop some of these debanking issues that you're concerned about?

Mr Vallas : I think commercial pressures there would mean they would have to look at them. The reality here is if we have an open market, which I know you espouse, and if we are able to encourage investment into the ecosystem others will take the opportunities that Australian businesses will not take for themselves. This is not a challenge of crowding out Australian businesses; if there is a gap in the market not being served by Australian businesses, why would we not seek foreign direct investment to bridge that gap? I do believe that the pressure will be brought to bear. I use as a very recent example, which is in the news, Afterpay being absorbed by Square. Square is a business that is committed to this space. Their CEO is committed to this space They're talking about all sorts of elements that matter to us. Afterpay is not a business that I've heard chatting about it. All of a sudden, we're part of a bigger organisation that has consideration for this. Those sorts of businesses should be encouraged to grow, if the local businesses will not take the opportunity.

CHAIR: The other way of me asking this question is: at the moment there is a situation where the Australian banks can point to the current regulatory framework, which is underdeveloped, and they can point to that as a reason to debank. Surely, if some of your recommendations were enacted, those excuses, or those justification points, wouldn't be available anymore, right?

Mr Vallas : I would expect so. Where there are anti-money-laundering issues and KYC issues, we can have that conversation today. The reality of the technology that underpins much of what we're talking about is transparent. So it is absolutely the case. I think you're right.

CHAIR: You're arguing that there should be a market licensing regime. At the moment, there is a fairly minimal obligation on licensees, through AUSTRAC, that want to become digital currency exchanges. So is it your position that there could be stronger or more onerous obligations put upon prospective market licensees?

Mr Vallas : With the recommendation we've made that there is a period of safe harbour, we need to figure out what the rules should be. Regarding confidence for the businesses who have already committed into this ecosystem and have invested a lot of money to employ a lot of Australians, if we're going to say the rules are going to change materially, we should give them an opportunity to accord with those as well. That is a conversation that has to happen, if we are talking about licensing, as opposed to just registration. A light-touch framework is represented in quite a number of the submissions, but we just need to give confidence first that says, 'We're going to go through the process and make sure we get it right.'

CHAIR: But is that right? It's a very light-touch regulation, isn't it, on the licences?

Mr Vallas : Yes.

CHAIR: In terms of custody, your position is that there should be a custody [inaudible]. Is this something that we could draw upon from other financial services aspects, or is this something that you think should be done from scratch?

Mr Vallas : No, it doesn't need to be done from scratch. I think the recommendation, as we put it, is that explicit notations should be made to ASIC and say that this is something that custodians can do in Australia. I know that there is a consultation that ASIC is running at the moment where custody is a major part of that submission and consultation. I think the industry as a whole has been given some confidence that we're heading in the right direction when it comes to custodian services, but, at the moment, no-one is jumping in because there has been a lack of clarity.

CHAIR: Okay. Imagine if none of this progressed, what happens to Australian consumers? One in five Australians are already exposed to digital assets. What do they do? Do they purchase digital assets and get exposure to digital assets through foreign exchanges? What sort of protection is there in place for Australians that are going through non-Australian exchanges in markets?

Mr Vallas : I think that we do become an irrelevancy, largely. I'm not one to sound the alarm bell, but the reality is that international businesses already have a place in Australia when it comes to people being able to participant in these markets. So that's what happens now. It is not an Australian-centric market in that respect. We may find ourselves—as we are—an outlier, potentially, because other businesses have given greater certainty to the operation of these businesses. One of the other businesses you are you speaking to, Independent Reserve, who where recently given the thumbs up to operate out of Singapore, will just operate out of other jurisdictions. But they would be regulatory compliant in a way that would otherwise satisfy our own regimes. So, quite absurdly, we push them offshore.

CHAIR: Australians will still have an appetite for this exposure, and, effectively, they'll just go around Australian regulatory structures?

Mr Vallas : I would imagine so. I think the reality here is that there is an appetite. The appetite is obvious and in plain sight today. If there is less competition available because Australian businesses themselves aren't afforded the opportunity, then, yes, they will seek other alternatives. As I said, they're not non-compliant; they are just based in other jurisdictions and others get the benefit of that situation.

CHAIR: I think Finder has said about 17 per cent of Australians have exposure to digital assets. Independent Reserve has estimated 20 per cent. Does that sound right to you?

Mr Vallas : It does, and we're working to get some more information in relation to that. I’m continuing to try to accumulate that information, but we know it is a widely considered asset class, particularly for younger people, and, increasingly, for those not quite so young. We think the attention has drawn interest, and, generally speaking, we expect more people will give consideration to potentially investing some money in these asset classes.

CHAIR: I want to ask some broader questions now. Your submission is very good in that it maps out and provides some very good international benchmarking for the Senate to consider. If we were starting from scratch—and we pretty much are starting from scratch, apart from the digital currency exchange regime run by AUSTRAC, what would be the best jurisdiction for us to start to look at?

Mr Vallas : Importantly, the way you framed this particular issues paper was the smart way. The reality is we look to Singapore. Singapore signalled strongly to the world that they've got an interest. That's a clever thing to do. They've spoken about licensing arrangements. If you speak to those in Singapore they'll say it's not perfect or it hasn't worked the way it should have, but they've taken that element and run with it well.

The UK, in the way that the FCA have looked at things, is of interest. It is a jurisdiction which mirrors ours in many respects from a historical legal perspective. They're going an interesting way as far as token mapping is concerned. The United States is of particular interest. It's interesting to watch what's happening in some states such as Wyoming, which are being much more innovative. We can see where the [inaudible] when we look to jurisdictions like Wyoming, because they are seeking to encourage direct investment within the US themselves. From my perspective, those three give us a bit of an indication of what we can do in the short term and some historical references around jurisdiction.

Europe is one that I didn't mention, but the microframework is a complicated thing. I think we will ultimately get some benefit just by watching what they're doing there. Theirs is, because of the number of countries involved, a little bit of a different approach from ours, but there's real complexity. So those four are where we'd probably look.

CHAIR: I want to ask you two more, quite random questions. First, maybe I'm being inarticulate about this, but, if we do nothing in this space and 20 per cent or perhaps more Australians want to get exposure to digital assets and acquire these digital assets offshore, what sort of protection and recourse would people have? Is there anything?

Mr Vallas : I might leave that question to Michael . The practising lawyer would probably be the better person to give you an answer about what that recourse looks like.

Mr Bacina : I think it leaves Australian purchasers of digital currencies in a very difficult position. Any international enforcement in the event of problems is extremely hard and extremely expensive. For all practical purposes, it leaves no recourse, and that feeds into the suggestion that we want to have a fit-for-purpose regulatory regime which strikes that very hard balance of encouraging businesses to stay here, so that we're not imposing too much cost, in order to give the benefits to consumers who want to gain access to these assets. Of course, any of these crypto-assets, which are in fact securities, should already be under licensed arrangements. The problematic situation is that they can't be, because licensed providers won't touch them, leaving aside funds which have crypto exposure. But having some kind of regime that comes in with licensing, if that's what the government wants to do, will be helpful in keeping it here.

Similarly, the custody point is very powerful because, when custody of any asset is held separately from the party who is dealing in it, a dramatic risk reduction occurs. That's a well-known and well-observed phenomenon.

CHAIR: This might sound like a crazy question, but, if we established a regime of licensing in Australia and we said, 'If you want to sell Bitcoin or you want to sell any token to an Australian, you have to have an Australian licence,' is that even something that we could reasonably enforce? I'm wondering whether that's something we could practically enforce given the global nature of some of this stuff.

Mr Bacina : That could be a real, practical issue. I think ASIC already has issues with offshore offerors of financial products marketing into Australia. They have practical limitations on what they can do, and that's why that light-touch approach you mention—striking that delicate balance—is important: if we do put something in place that's onerous so people here don't do it, you're absolutely right that the demand from consumers or even investors will go where they can find it, and the nature of digital assets means they can move quite easily internationally. So we want to ensure we don't end up with an accidental over-regulation or what amounts to a commercial ban because there's no point in doing it here. But that is a constant problem faced by the normal financial sector as well.

At one level you could simply take the position that, if you're involved in this kind of business, you must have some kind of custody in place. As Steve mentioned, the CP 343 consultation from ASIC has really excellent suggestions on standards for custody which ought to be deployed and in many cases practically are deployed already by digital currency exchanges in Australia. That kind of signalling fits into an education piece, but there are various levels along the way if you feel that licensing on certain aspects is too far. There are things that could be done that don't necessarily need to rise so high. You could tie it into the requirement that, if you're enrolled and registered for AUSTRAC, you must deal with digital assets you hold that meet that definition in this way. That's not something that's impossible to put in; in fact, it's quite simple and a small change that would meet what most of the industry is doing already.

CHAIR: How has ASIC been so far? Have they been good or not so good?

Mr Vallas : I've made myself available to ASIC as much as they would like. They've increasingly taken advantage of that offer. We would like to be dealing with them much more regularly. We're happy to engage with them regularly. Our members are happy to engage with them regularly. So we look forward to meeting with them much more from here on. We believe that, within ASIC, they know that this is something which is of significant interest to consumers, retail and wholesale. So we would hope and expect that they would be more engaged with us going forward.

Mr Bacina : I might add that ASIC faces the same kind of problem that US regulators face. There was a public statement from Commissioner Peirce and Commissioner Roisman of the SEC in July which summarised this really well—and I can certainly send a copy to the committee—and noted the lack of clarity in the US and that people over there are effectively reading the tea leaves of what prosecutions have occurred to try to understand. That comment came out of a digital currency exchange being shut down. The comment from Commissioner Pierce was that the order only tells us that some unspecified quantity of 2.500 tokens that the company was offering for sale were securities but falls short of saying which ones were considered securities and, critically, why. That kind of guidance and that statement certainly goes to the points around the industry wanting to have clear guidance. I certainly don't advocate that everything ought to be dealt with as a security or a financial product, because they're not. The UK task force has done a wonderful job identifying how digital assets are property first and foremost, and I suggest they be analysed, starting out by looking at them as a commodity. If there's something on top of that that's not mutually exclusive for something becoming a financial product that's also a commodity. Land is a commodity and there are all sorts of regulations around the transfer of land.

CHAIR: I understand. I guess the point here is, given the international nature of this commerce, usually there would be an international body doing some work on trying to do some standardisation of taxation. The OECD is now doing some work around standard rates of corporate taxation. Those of us who have tried to advocate for lower company taxes have mixed views about this. But is there any international body that's doing this sort of work that we could draw upon?

Mr Bacina : The OECD has. I think that Chloe might be able to speak more on the blockchain point. Chloe, did you want to handle that?

Ms White : I'm happy to speak to this issue. I think that the problem is not so much that ASIC is not engaging or the regulators are not engaging. The issue that separates Australia from international jurisdictions is that in Australia we've tended to only pay attention to this industry during times when there has been a lot of hype. Then, during the quiet times, a lot of that capability and expertise has been allowed to dissipate. So this is now the third time that we're starting again to try to understand what this technology does, whereas in other jurisdictions they've recruited specialists into the public service or set up multiagency task forces that have continued to consult industry and develop policy through those quiet periods. So that puts Australia at a disadvantage. Yes, they have groups and there's the road map and those types of things, but one of the gaps that we have in Australia is that there has been a general reluctance in the APS to develop a holistic view as to how blockchain will change the nature of capital and financial markets and the benefits that it could bring to competition and consumers and the economy. There are some exceptions to that, but we can't afford to rely on two or three individuals when other countries have gone and set up these proper teams. So there needs to be a greater commitment from policymakers to develop a real understanding of the space and its trajectory, because, at the moment, what policymakers here are failing to do is anticipate the issues as they arise. So we've been in a very reactive position where policy advice and analysis has been concerned.

CHAIR: I might get you to provide that OECD work on notice, please, back to the committee.

Senator MARIELLE SMITH: I have one last question. For my constituents and other people out there in Australia who might not have a sophisticated understanding of this sector, this technology and this class of asset, why does reform matter to them? What are we missing out on by failing to regulate this property? What are the opportunities for the rest of Australia from a growth in your industry and from better regulation?

Ms White : I think that one of the unrecognised opportunities here is that, while we often talk about the risks of the assets and the technology being built in this space, there's a lot of potential to deploy this technology to actually mitigate risk in financial markets at an individual, a business and a systemic level. This is where I think the principle of technology neutrality needs to be further explored in terms of how that can be applied here. If you deploy blockchain technology for some financial products or services, what you could do is say that you've actually reduced counterparty or default risk or that you've reduced settlement risk or systemic risk through greater transparency. So the technology can actually help to drive more safety in financial markets and the delivery of products and services, and that's a benefit to consumers.

It's also a benefit to greater competition in financial services, because another advantage of this technology is that it does have very low costs of operation. What you can see coming forward in fintech are some CDR-style benefits, for example, because of the programmable modular nature of smart contracts and the way in which these different services are really interoperable. There's a lot of untapped potential that I think is not very well understood in Australia, and that has really important flow-on benefits for consumers as well as for investors. I don't think that the right framing here is to think about this as being an issue of innovators versus consumer protection. I think they're actually very much hand in hand, and they are both benefited by a clearer, fit-for-purpose regulatory regime.

Mr Bacina : I might add to Chloe's comment, if I may—and thank you for your insightful questions. You mentioned in an earlier question to Mr Vallas about the bad Wild West comments around digital currencies. To be clear, there's a lot of blockchain and DLT happening in the background of systems that don't touch any kind of regulation and ought not to. They're just software and they do things. When we're talking about things like bitcoin and other digital currencies, an excellent point is: how does the public gain by doing a lot of regulation around it? If the regulation is not done right, the answer is that they lose. As Senator Bragg sensibly pointed out, people can go offshore.

When you look at things from the starting point of 'These things look like digital collectibles'—the NFT, the non-fungible tokens, that have arisen in recent times are even more identifiable as collectibles—it helps people to conceptually understand it. If the position is that the government believes that people will lose more from regulation than they gain then the focus is on education, which is what we do for scams day in, day out as a country. We say that people need to be aware of these concerns when they're dealing in a market. If they're buying a car, they should have it inspected. The government's not going to make them inspect it. They're going to leave them to make their choices. They're going to set up a framework where, if someone lies to you and misleads you, you have some recourse to try and go after them, but, if you're a consumer and you don't make those checks, it is on you. There is an element of personal responsibility.

To your point, there is this prevailing news that the bad story in the Wild West will slowly go away. Mr Vallas didn't mention it, but in the early days of bitcoin it was being used in connection with the Silk Road and whatnot. From recent research, that's starting to go away. Chainalysis is one company that the committee could look to around the statistics of what is happening in terms of bad actions in the industry. But, really, the position is: how much do consumers benefit from what regulation is put in place? A strong licencing approach will work if ASIC is resourced to do it and the requirements around it, taking into account that no-one can obtain insurance in the space right now. There's a real challenge there. If a requirement for a licence is that you have PI insurance, you may end up with a de facto ban.

CHAIR: Thank you very much. We really appreciate you making the time available today and we look forward to you providing a response to the question on notice.