Widespread use of crypto increases risk of disruption, says RBA

More widespread use of crypto for everyday payments will increase risks for merchants and customers, says the Reserve Bank of Australia.

In its October Financial Stability Review, the bank focuses on emerging risks related to cryptocurrency assets and says they generate similar threats to other payment systems (such as credit risks, liquidity, operational and settlement), but with greater potential for catastrophe.

“The extent to which these issues pose risks to financial stability will depend on the scale and nature of the system,” the RBA said.

“However, in an extreme case, it could have the potential to disrupt critical financial services or threaten confidence in financial institutions.”

These potential risks are on the radar of regulators in Australia and around the world, who are developing regulatory frameworks that would apply to crypto-assets with a particular focus on payout stablecoins.

Stablecoins are crypto-assets that aim to minimize price volatility relative to another asset or basket of assets, usually a fiat currency like the US dollar or a common store of value like gold.

The RBA warning came before the Accountants Daily Strategy Day 2022 later this year, where speakers will outline the obligations of accountants and their clients who are crypto investors, and provide an overview of ATO requirements and how crypto is currently taxed in Australia.

Crypto-assets are currently not widely used for everyday payments and the RBA has said they are not suitable in many cases due to high fees, capacity and speed constraints imposed by underdeveloped technology. and volatility (in the case of unsecured crypto-assets).

“However, there is considerable interest globally in the potential of stablecoins to improve the efficiency of a range of payment and other financial services,” the RBA said.

Crypto Risks Could Spill Over to the Financial System

The Financial Stability Review also warned that as ties between the crypto ecosystem and the traditional financial system grow, risks could “spill over” to disrupt other parts of the financial system.

Although there have been recent episodes of stress in crypto-asset markets, the impacts have not spread to other parts of the financial system as the links between crypto-assets and traditional financial markets remain weak. , noted the RBA.

However, the ties have strengthened in recent years due to greater involvement of traditional investors, banks and other financial institutions.

“The rapid growth of asset-backed stablecoins has also introduced direct links between crypto-assets and financial asset markets,” the RBA said.

“Continued growth and stronger ties could see risks to financial stability come from a number of sources going forward.”

Ongoing Crypto Regulation

According to the RBA.

“Work is underway by policymakers to consider what adjustments are needed to current regulatory frameworks to enable effective oversight of the risks presented by crypto-asset-related activities,” he said.

Regulators are working to improve consumer protections around crypto-assets, including targeting misleading or fraudulent advertising by crypto market operators such as exchanges and lending platforms, the RBA said.

In addition, other jurisdictions, including Australia, are consulting or developing national regulations, he added.

“In addition, regulators are working to ensure compliance of crypto activities with existing legislation,” the central bank said.

“One of the objectives is to identify the extent to which crypto-assets and intermediaries share common characteristics with the traditional financial system, with the aim of producing “technology-neutral” regulation (i.e., same activity, same risk, same regulations).”

The federal government recently said it would take steps to tighten crypto regulations starting with a “token mapping” analysis, which would identify how crypto and related services should be regulated by creating a uniform set of terms for assets.

He lamented that consumers need more protection, but regulation has struggled to keep pace with developments in the crypto space.

In a recent opinion piece, GBG’s Regional Managing Director for Australia and New Zealand, Carol Chris, noted that Australia was leading the way in a licensing framework for digital assets and warned service providers crypto to prepare for crypto regulation, or risk of becoming non-compliantlosing reputation or being unable to function at all.

To learn more about the digital asset revolution, the regulatory crackdown on cryptocurrency, and its tax implications, come to Accountants Daily Strategy Day 2022.

It will be held on November 29 at the Grand Hyatt Melbourne and December 1 at the Parkroyal Parramatta.

Click here to book your tickets and don’t miss a thing!

For more information, including agenda and speakers, click here.