Phil Lowe, Joe Longo plead for urgent crypto powers as recommended by Treasury review

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Shadow Treasurer Jim Chalmers, providing the first insight into Labor’s thinking on payment system reforms, said the current regime “lacks coherent oversight to address the complexity of issues and the pace of frequent innovation in the sector”.

Mr Chalmers pledged Labor would empower regulators to act and said it would engage closely with the finance industry and regulators. A Labor government would seek to promote innovation, boost resilience, address financial crime risk and maintain adequate competition, while “empowering regulators and facilitating regulation that is as agile as the sector itself,” he said.

ASIC chairman Joe Longo said recommendations from the review by lawyer Scott Farrell and the Senate committee chaired by Andrew Bragg – which the government has agreed to implement – ​​are urgent.

“In the short time I have been [ASIC] chair, I have been surprised how quickly this phenomenon has grown and has assumed a lot more of my time than I suspected before I started,” he said.

ASIC chairman Joe Longo has been surprised how quickly the crypto phenomenon has grown. Eamon Gallagher

“We have a proliferation of payment systems and a regulatory regime which the governor has noted – and we all accept – is in need of reform…. We don’t have a lot of time to deal with these issues. The quicker we can regulate this space in a way that gets the balance right between being innovative and investor protections, the better.”

New laws would not only target the crypto economy but some of the world’s largest companies, including Apple.

Apple competition issue

Westpac CEO Peter King, now chairman of the ABA, said on Friday that Apple’s control of the antenna on iPhones which communicate with payment terminals is a major competition issue.

“The phone is becoming the bank … so who has the ability to influence the phone can influence how the system works,” Mr King said. “For us, there is a particular feature of the phone that is controlled singularly by Apple, that we think may be beneficial for all participants if there was equal access to it … the handset itself is critical, if you can control it, you can direct it.”

Moves towards payments with digital tokens – the digital representation of some form of value but not necessarily a fiat currency – could create new infrastructure outside the existing card schemes and Eftpos, and there are dangers in allowing new private networks to take over critical infrastructure, he said.

“I think we should control our financial system and payments,” Mr King said.

The Reserve Bank, like other central banks, is considering creating a digital form of Australian dollar cash. Dr Lowe said issues being debated include resilience to prevent counterfeiting; whether central bank digital currencies should be anonymous or traceable; and the role of commercial banks in distributing them. Other issues include rules around collateral, interoperability, and whether they pay interest.

A Council of Financial Regulators paper out due out next month will set out policy questions for government around crypto regulation. The government has agreed to set up a specific licensing regime for crypto assets while also encouraging new models that challenge the banks. Mr Longo agreed with this approach.

“There are a lot of people in this space that welcome some regulation and want to see this sector put on a sounder footing, for the very good reason we want consumer investors to be confident in their investment decisions. As things stand, we are not quite there yet. There is a lot of work ahead of us.”

US president Joe Biden this week signed an executive order calling for additional measures to address the risks, and harness the potential benefits, of digital assets for the United States.

APRA chairman Wayne Byres also backed action on the Farrell and Bragg reviews. “They are giving us a good whole of government road map that tries to find the balance between allowing the innovation and competition benefits to flow to the community while balancing the need for community protection,” Mr Byres said.

Mr Chalmers, who spent some of the week in Sydney meeting CEOs and company directors, said Labor recognizes the banks’ response to the royal commission including a lot of new legislation and “we want you to be able to digest it and move on”.

“We want to maximize the confidence in your industry, and move forward together,” he said.

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