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But she added: “Their links to the financial system are increasing, so there is potential there for risks to rise, and rise quite quickly.”
Australian Prudential Regulation Authority chairman Wayne Byres said the episode pointed to the need for regulation of stablecoins, which are supposed to create digital currencies with a value that mimics a fiat currency.
He said it was “difficult for consumers to understand the risks they are running” when they invested in stablecoins, but he questioned whether it was appropriate for them to be overseen by banking regulators, given most were created by non-banks in the tech sector.
Wayne Byers told the lunch some form of regulation was on the horizon. Natalie Boog
“It is not obvious to me that the role that might be needed when it comes to stablecoins is necessarily one for the prudential regulator as such. But I think it is clear – and is certainly absolutely worthy of consideration – that as these sorts of digital currencies move more into the mainstream, that there is going to be some form of regulatory requirements,” Mr Byres said.
“Some will be protective and some will be helpful to facilitate an orderly market developing,” he told the Financial Services Institute of Australasia event in Sydney, attended by about 350 people.
Ms Yellen told legislators on the US House of Representatives financial services committee on Thursday that US Treasury was working on a report about the dangers of stablecoins, which “present the same kind of risks that we have known for centuries in connection with bank runs”.
The Council of Financial Regulators in Australia is also monitoring the volatile space.
Other big Australian regulators have addressed the crypto collapse. AUSTRAC CEO Nicole Rose raised concerns, telling the lunch that the “increasing use of distributed ledger technology such as blockchain creates some financial crime risk” given transactions were either pseudonymous or anonymous.
“It is these traits that make these technologies so appealing to criminals,” she said.
AUSTRAC deputy chief executive John Moss told The Australian Financial Review Cryptocurrency Summit in April that digital currencies were being used to facilitate money laundering, investment scams, ransomware and terrorism financing.
ASIC commissioner Cathie Armour said on Friday that the corporate regulator was watching the development of crypto consumer protections in the United States following President Joe Biden’s executive order in March, and specific legislation in Europe.
“This is an area where international co-operation, and learning from international organisations, is important to avoid market fragmentation,” she said.
Australia would be influenced by international developments, and she urged people to take part in Treasury’s consultation to design a crypto regulation regime for Australia.
Ms Bullock used her speech at the event to urge the next government to continue with the payment policy reforms to widen definitions in the payment legislation, which will ensure the Reserve Bank can regulate new players entering the space.
Broadening the payments act to give the RBA more power over technology companies is supported by banks and other regulators, and is under consideration by the federal government.
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