SMSFs warned over buying unregulated crypto
SMSFs looking at investing in cryptocurrency need to ensure they do their due diligence now more than ever with the government’s proposed regulations around the digital investment sector, said an expert.
Jeff Yew, Monochrome Asset Management chief executive, said the crypto landscape has to date been largely unregulated and SMSF trustees and auditors should be aware of this.
“Crypto exchanges are not like a bank, they are still basically unregulated,” Mr Yew said.
“These proposed changes will come into law in 18-24 months, and it signals to the market that it is worth urgently reconsidering the terms and conditions of the crypto platforms they use and the risk to which they may be exposed.”
The draft legislation is expected to propose a financial services licensing regime for digital currency exchanges, stablecoin operators, and digital asset custody services.
This would require digital currency exchanges and other service providers to meet, amongst other things, specific obligations around organisational and technological competency, requiring licence conditions to be met and monitored. This would provide much-needed regulatory oversight of these organisations.
It suggests all crypto exchanges that hold more than $1,500 of any one client or more than $5 million in total assets would require an AFSL granted by ASIC.
Tax rules specify that investors must have clear ownership of assets in an SMSF portfolio, such as shares or property.
However, Mr Yew said when SMSF trustees purchase crypto through an online digital currency exchange, they run the risk of falling foul of this rule as they may not get legal title to the crypto assets.
“Trustees must adhere to the superannuation laws and regulations, which include proper custody of an SMSF’s assets,” he said.
“Failing to comply with superannuation laws can have serious implications for SFMS trustees including civil and potential criminal penalties.”
Mr Yew said Monochrome operates under an ASFL, and its flagship product provides trustees with the entitlement to their assets required under superannuation laws.
He said the company deals with a number of investor classes and is regulated, unlike many crypto exchanges.
“The exchanges tend to appeal to the younger demographics – the Millennials and Gen Z,” he said.
“At Monochrome we haven’t got your typical youth cohort. Our investors are in the age bracket that is more toward the middle or the end of their careers and they are looking for something which is regulated and compliant.”
He added for SMSFs wishing to explore crypto as an investment option, it is important they investigate if the structure they chose to invest in meets compliance requirements.
“The issue today is that crypto exchanges are strong on marketing and pushing the appearance they are heavily regulated when they are not,” he said.
“A lot of work has been done to create the illusion that the SMSF has control of the asset on crypto platforms but none of these things are related to the legal obligations of an SMSF to hold legal title to the asset.
“Just because it looks regulated, doesn’t mean it is.”
