The Australian Prudential Regulation Authority (APRA) has published a letter to Australian regulatory bodies on Thursday setting out its expectations of risk management, as well as a roadmap for digital assets policy through 2025.
Chairman Waynes Byres detailed in the letter “while activities associated with crypto assets are still relatively limited in Australia, the potential scale and risks of such activities could become significant over time”.
The letter instructed Australian regulatory bodies undertaking digital asset activities to engage with supervisory agencies, laying out the risk management measures and standards that are specific to a variety of situations, foreseeing enacting requirements for bank exposure, operational risk and stablecoins by 2025.
“In recent years, there has been rapid growth in crypto-assets and the use of distributed ledger technology. While activities associated with crypto-assets are still relatively limited in Australia, the potential scale and risks of such activities could become significant over time.”
“There are several types of crypto-assets, including tokenised traditional assets, crypto-assets with stabilisation mechanisms (stablecoins) and other unbacked crypto-assets, and a range of direct and indirect activities associated with these assets that entities could undertake. Such activities include, for example, investment in crypto-assets, lending linked with crypto-assets, issuance of crypto-assets, and providing services associated with crypto-assets for customers. In addition, entities may seek to invest in or partner with technology or other companies to provide new offerings for customers.”
“While these activities can provide opportunities and benefits for the financial system and its customers, they also bring new risks that may be challenging for entities to identify, assess and manage. As the Basel Committee on Banking Supervision has noted, certain crypto-assets have exhibited a high degree of volatility and could present material risks as exposures increase. The risks are wide-ranging, covering, for example, operational, investment, and credit risk. The operational risks are particularly important, and encompass fraud, cyber, conduct, AML/CTF and technology risks.
APRA therefore expects that all regulated entities will adopt a prudent approach if they are undertaking activities associated with crypto-assets, and ensure that any risks are well understood and well managed before launching material new initiatives.”
The agency will consult with international regulatory entities to make sure a consistent approach to digital asset operations. It plans to hold consultations with the Bank for International Settlements (BIS) Basel Committee on Banking Supervision this year and next before revealing the digital asset requirements, which will take effect in 2025.
Blockchain Australia submitted crypto regulation recommendations to the Australian government in July. The association emphasised “examining the work done in overseas jurisdictions” and warned the industry “cannot afford to wait years for regulatory clarity.”
Byres announced the upcoming release of the letter and placed it in the context of the agency’s larger plans in a speech to the American Chamber of Commerce earlier this month.
APRA acts as the prudential regulator of the financial services industry in Australia. The agency oversees banks, credit unions, building societies, various insurance industry players, as well as most members of the superannuation industry. APRA supervises institutions that hold an aggregate AUD 7.9tn (USD 5.9tn) in assets for Australian depositors, policyholders, and superannuation fund members, according to data from the regulator.
