In a submission to the government’s proposal paper, Regulating Digital Asset Platforms, the SMSFA said the targeting of retail clients by unscrupulous sellers is concerning as many will not have the level of knowledge or sophistication required to fully understand their exposure and the risks associated with these unregulated investments.
“Despite the strong retail client exposure, clients are often unable to obtain financial advice from a qualified professional,” the association stated.
“The current regulatory environment sees many financial advisers unable to provide advice to clients. This includes advice on the disposal of such investments.”
The submission continued that the barrier to advice arises for a variety of reasons including licensee prohibitions, the lack of cover, and exclusions in professional indemnity insurance policies.
“The emergence of digital assets has seen some SMSF trustees include these assets as part of their investment strategies,” it said.
“We expect that these issues will extend to other investors, not just SMSFs.”
The SMSFA said issues arise due to the lack of certainty on the existence, title, and valuation of these investments.
“These are critical elements not only for the completion of the annual SMSF audit, but also for SMSF investors more generally,” it said.
“Where reports are made available to investors, these are generally in the form of an Excel spreadsheet or CSV data file. They lack crucial details, certainty, substance and are unreliable.”
Additionally, lack of regulation leaves investors exposed to an increased risk of fraud and no avenue to address complaints and inappropriate behaviour or to seek redress.
“These products are heavily marketed to retail clients who would ordinarily be afforded prescribed protections under the law,” the submission continued.
“Whilst we support innovation and development of new financial products, this must be balanced alongside an appropriate level of regulation. We would therefore welcome measures that seek to build an appropriate regulatory framework to improve market integrity, protect investors from inappropriate activity, and allow them to obtain independent professional financial advice.”
