ASIC president hints at flaws in digital asset custody solutions

Australian Securities & Investments Commission (ASIC) Chairman Joe Longo, speaking at AFR’s Super & Wealth Summit, made the news Monday when he noted that crypto “investors are alone “. The rest of his quote talks about the country’s regulatory situation, stating that “ASIC has already provided advice on exchange-traded funds related to crypto assets – these are at least financial products and traded on a licensed exchange, he said. So there will be some protections there. But for the most part, for now at least, investors are on their own. In combination with other parts of his speech, many questioned whether this was a critique of the industry’s custody solutions.

“Mr. Longo is walking an interesting tightrope, acknowledging the current regulatory components associated with exchange-traded funds linked to digital assets, while other officials talk about the power of blockchain technology. But then he juxtaposes that with the innate risk investors take when dealing directly with crypto. This is an interesting position, but not surprising given the current state of custody solutions, ”said Richard Gardner, CEO of Modulus, a developer America’s state-of-the-art trading and surveillance technologies that power global equities, derivatives and digital asset exchanges.

“While investors are protected in Australia when they purchase defined ‘financial products’, many digital assets are not considered ‘financial products’ and, therefore, investors are not protected against wrongdoing. At the same time, Australian Financial Services Minister Jane Hume noted that digital assets are not a “fad” and citizens should not be “afraid of the unknown”. Taken together, these can be complex messages to analyze, ”Gardner said.

Longo’s comments, in part, included the following:

“ASIC is [not] here to eliminate the risks… But where the industry has neglected to take its share of responsibility, ASIC will not hesitate to deploy the powers of our regulatory toolbox – to deter wrongdoing that causes damage, stand up for Accountable individuals and companies who treat their responsibilities as discretionary, and foster a culture of better corporate behavior… By applying the law to those who break the rules, we support those who want to do the right thing.

“From the commentary, we can assume that ASIC is looking for ways to create compliance measures without compensating investors when trading falters. This is where the industry’s opportunity lies. Custodians are expected to fulfill this role, protecting assets between when an investor buys and is ready to sell. However, the providers of child care, as well as the proper use by the exchanges of these providers, has proven to be woefully inadequate. The market craves a secure solution that allows investors to buy digital assets with confidence. Better custody solutions, used appropriately, would drastically reduce the number of headlines published by hackers, ”Gardner noted.

Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Modulus has provided its exchange solution to some of the most profitable digital asset exchanges in the industry, including a well-known multi-billion dollar cryptocurrency exchange. Over the past twenty years, the company has developed technology for the world’s most notable institutions, with a client list that includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays , Siemens, Shell, Yahoo! , Microsoft, Cornell University and the University of Chicago.

“Assets stored in exchange accounts are not as secure as assets stored in cold storage. Guard solutions must be developed with institutional level security features, making hacks and other attacks impossible. However, a quick Google search of the current major vendors will show that they are riddled with security holes. It is not a guard that investors can believe in. There has to be a significant change of guard for crypto to flourish to its full potential, ”Gardner said.