Aug 16, 2023

Some of the largest traditional financial institutions in Australia have been limiting and blocking funds transfers to cryptocurrency exchanges citing rising scams and fraudulent activities.

Video transcript

Australia's largest banks are bearing down on crypto payments as scrutiny on digital asset exchanges intensifies. What are the options for crypto firms down under amid a rise in scams, will investors place their trust in money in the industry? And when will the call for regulatory clarity be answered? Coming up on word on the block, Caroline Bowler Ceo of BT C markets joins in to dive deep into those topics and a whole lot more. A three year long court battle between ripple labs and the United States securities regulator had the crypto community on the edge. Then the judge ruled Ripple's XRP is not a security when sold to retail traders sending the token soaring. While the SEC said it is reviewing still the decision, the case could have far reaching influence on crypto regulations around the world. Now, halfway across the globe in Australia, crypto firms are facing tighter licensing requirements and possible de banking as leading local banks like the Commonwealth Bank and National Australia Bank restrict payments to crypto exchanges to curb scams and fraud. Now, the need for regulatory clarity has never been more evident. But at the same time, regulatory disparity between different geographies also has never been more pronounced. So what is it that the crypto industry wants? What is the need of the hour? Let's dive into all of this and more on this edition of Word on the block. The series that takes a deeper dive into Blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. That's what we cover right here on forecast. I'm editor in chief Angie Lau. What ripple effect will recent events have on crypto exchanges and the markets who better to break it down for us than Caroline Bowler, CEO of BT C markets, one of the largest and oldest digital exchanges in Australia and Caroline. Welcome to the show. Great to see you again today. A lot has happened since the last time we talked. I think it was, it was right before the FTX meltdown in November of last year was when we last spoke. Wow, things have changed ever so slightly since last we spoke and in, in some ways, in some ways, maybe for the better we went from FTX December was practically dead and crypto. And then we started to see the return come in January and now here we are in July and, and we're definitely seeing a return in, in terms in terms of liquidity, um not necessarily in volatility but certainly in the return, a return of liquidity. And then we have the ripple. Yeah. And then we have ripple. I mean, the liquidity is the start of it. But you, you know, as I reflect on really what happened, I mean, you were really at, at the front of the battle lines in that we saw not only the, the de degradation of trust from FTX, but it was very, it was, it, it was really a contagion effect and exchanges after exchanges got hit. What was, what was the experience that you had with the trust you had been building up one of the oldest exchanges in crypto in Australia, having built up that, that trust level, even from the regulator, the the regulatory um front and then to be confronted by just this, this event that was really out of your control for us as a as a business as an exchange, we saw it in flow of clients, people were transferring their funds back on shore back into Australian Exchange, particularly obviously, because we're only Australians. So they were moving their funds and their train back on shore into, into an Australian exchange. So in some respects, we are a net beneficiary of what happened with FTX in that regard. I think too that there was and has been since we've certainly heard a lot from clients, an understanding of the positions that we've taken in terms of the cautious note that we've taken in terms of really strongly looking at it from a regulatory point of view in every move that we've made. And even though it's certainly, you know, we certainly walked, walked away for some profitability in that decision making. But I think for us, it was about understanding that, that there is in this early stage of the business, a very real need for that cautious note. Um, and I think it's paid off for, for our account, we don't take out that trust lightly at all. Um, and, and we work very hard to maintain and sustain that. But, but to that point, the FTX debacle just, I think for everybody degrade and trust across the industry and something that's going to take some time to build and get back. We need legislation to come in. And certainly here in Australia, we've seen a change in successive governments, both of which have had crypto regulation as part of their, as part of their remit. Um And we've certainly seen that kind of progress slowly come through here locally, but I think Vince has ever kind of take away the, the, the pace of that and just push it to the, to the, to the front. Um And certainly what we've seen out in the US now, it, it, I, I would imagine it's very high on the agenda. So I absolutely want to check in on Australia and, and right now, no one has really pierced that holy grail of mass adoption for that to happen. As you've said, there's got to be legislative rails, there's got to be regulatory rails, institutional support, liquidity, services, vendors, firms, and of course, investors. What do you think the crypto sentiment in Australia is right now with, with XRP potentially back in play? Yeah, I think that if anything, there is a, a cautious note of optimism in Australia and I say that as somebody who's been sitting in the cross winds as it, as sentiment has blown one direction or the other, a cautious note And I think it's as much to do with the fact that with all of the carry on that's happened in the industry, it hasn't been Australian exchanges, it hasn't been Australian projects. Yes, people have been caught up in it. But the industry like the the local industry around Blockchain and Cryptocurrency has managed to get through this relatively unscathed and with pretty good behaviors in place. Personally, I don't think I want to see the same scale of um exuberance. We saw a lot of froth in the market in the last bull. And the reason why I don't want that is because ultimately retail investors get burnt out by that. So instead, I think if we can see a steady progressive um growth across the market as more of the infrastructure gets built out as more of those payment rails and, and legislative rails, as you mentioned, get built out here locally, Australia is in a prime opportunity in the region and, and internationally. Um and, and, and, and particularly since it's traditional financial set network. And I use that term not disparagingly as a, as a former bank employee. Um, but there's traditional there, it's a very well built up and very well regulated and understood industry here locally and Cryptocurrency specifically can very easily fold into that. And Australia can really take its place regionally, um, as a Cryptocurrency center. But it's now on, it's now on things like the government and, and Asic to, to lead the charge to break that way and support the local Australian businesses that have tried so hard to keep going through these more challenging times. Well, you, you're definitely um a among the, the leading ones who are, who have been working with legislators and regulators as I know. Um and really being that industry influence, do you see other traditional finance peers in Australia also wanting to come into the digital asset space? We're, we're starting to see that emerge uh across Asia Pacific for sure. But I'm curious what the, the landscape and the environment is like in Australia right now. I think it's, it's a space that's only going to get bigger, um particularly when we look at international trends, if we look at what the Europeans are going to be doing, but once the market comes into play, that is going to go, if I can use the word Gangbusters, but it's going to go crazy, the development that's going to come out of, out of that region and that's going to be hugely influential as well as if we look at, at what Asia Pacific has done. If you look at Singapore now, Hong Kong, you look at the, the Japanese centers like these are, these are areas and countries that have been really closely looking at crypto and digital lessons for years. So there's an awful lot to come through and it's, I mean, it's very, very exciting but it is so important that we get the right groundings to the lessons that we need to learn as an industry from both traditional finance, from recent events in our own, in our own sector, incorporate that and off we go. And here's the thing like the, the the good behaviors that we need to take to, to deliver, deliver on aren't challenging things like separation of client assets like segregation, client assets that's not particularly difficult to do in terms of work, huge parts of your technology to succeed in that. And even if you look at, I ask, they've got their, their recommendation documentation that's out at the moment, the white paper out which I'm going through avidly. But the recommendations that they're putting forward are things like um providing information on an ongoing basis around each of the projects that you list. You know why you've listed them? What you're listing criteria are any disclosures you need. These are things that don't require rebuild up a tech stack. You know, you can do this stuff Um and so, so, you know, we just add so much to the investor um and, and gives, you know, comfort as well to regulations that you're doing the right thing. I note that what's happened with the SEC, right? And the, the uh a US judge finding that XRP is not a security when it came to uh mass retail, but when it was sold to institutional um participants, it was considered a security. So these nuances coming out of the US, do they have influence on jurisdictions like Australia? When you take a look at that, does that have uh uh a precedent setting uh impact? How do, how do, how do you as industry leader? And how does Australia from a legal perspective? View uh a ruling like that? I think it's influential in the sense that of course, what the SEC does is influential around the world and, and you would any regulator or legislator is going to look at what they do and take it into consideration. Um But their decision that SRP is not a security, I think mirrors what we saw out of Japan years ago where they said it wasn't a security and certainly here in Australia, it didn't, it didn't match up with the local test around what security was for XRP. You can't retrofit a lot of what we saw in traditional finance into crypto because of the fact that this is so new and there is then that opportunity for nuance, which nobody really wants, like, apart from lawyers perhaps, but certainly anybody who's running a business doesn't want there to be any legal nuance. So you want that clarity for me? Certainly, sitting here in Australia, I look, I look at what the UK is doing very closely. Australia looks very closely at the UK. Anyway, there's obviously the historical connections between the two countries. But from what I can understand, you know, there is a lot of um a very close relations between the two, from a government, from a registry point of view. But I also think with the UK, they've got a history of taking on opportunities in, in financial services and, and really making something of it and certainly the big bang and et cetera, et cetera. But and so there is a lot of it um very, very smart people in the UK, in and around London in the financial services who are absolutely working on will be probably the next big thing. And even though there's thing outside of Europe, now, I still think that their impact will be felt across the European Union and certainly across into the US and hopefully here to, to Australia. Hold on to that thought. When we come back, we're gonna be breaking down with Caroline Beller on the crypto landscape in Australia. The impact and beyond stay with us. Australians have been hit with one interest rate hike after another in the battle against inflation. An Australian Central Bank backed digital currency or CBD C be the answer, regulators, institutions and crypto work together to propel the country into a digital economy. More. When we come back, if you don't understand the future, you'll never see your place in it. Introducing forecast plus covering all things, Blockchain, independent reporting, insights and access from Asia to the world. And you cut through the noise where technology insights and access mute where smart conversations happen, make friends with disruption forecast. Plus. Welcome back to word on the block. I'm Angie Lau. I'm here with Caroline Beller and we're talking about all things crypto Australia. You've painted a global picture for us, but I also want to understand the economic dynamic that is happening in Australia right now, much like the rest of the world. It's battling multi decade high inflation levels. The Reserve Bank of Australia also hiked interest rates to its highest in 11 years in June. I mean, it's, it's the hike heard around the world. Every, every nation I feel like is experiencing this. And the country's central bank Governor Michelle Bullock has had quite a task ahead of her. What are some of the challenges or opportunities that you see Caroline for the crypto industry in the current macro environment first in Australia? And I think we can take a page out of that and, and extrapolate it for the global economy too, this bare cycle and now the economic experience that we're going through as perhaps given the impetus for us all to really closely examine our businesses. Why that's important is because when you've got that kind of core strength coming out of your, out of your business, you then have the opportunity when the cycle turns, which inevitably it does, you've got that opportunity to really be a springboard out. So I think that there is an opportunity then for Australian businesses in this sector to become leaders regionally and potentially then globally, simply because of how well they will then uh you know, be retooled through this process. What does it mean then for us on a day to day level, we certainly saw, you know, the drawback out of liquidity from a market, both from an institutional point of view, but also from a retail trader point of view, as I mentioned, December was particularly low and for us as a as a trading entity, we start to see the club come out in January. But what was also really interesting on Friday where we saw the XRP announcement was the rush of liquidity that came on the exchange. So what that told me is that there was a number of participants and particularly retail who were sitting on the sidelines and waiting. Um And so there are perhaps pockets within the economy here locally where they have got some liquidity that's just sitting and waiting for opportunities either, you know, in crypto where they saw that particular movement and they thought, ok, you know, this is a position we want to trade on or else there's, they're, they're hoarding their cash waiting for the rest of the cycle to play through. I suspect that in other western slash developed nations that's probably what we're going to see, you know, play out. I certainly get the feeling locally is that, yeah, we're starting to really feel the impact of both the interest rate increases and really starting to feel the pinch in terms of prices. Um It's really starting to hit here and I think that um the rest of this calendar year, we're certainly going to feel that um hit businesses and hit bottom lines for, I think crypto though, we're kind of contrary to, to those markets because the expectation is with um the Bitcoin having expected in April of next year generally, what that's meant is that in the build up, we see the increase in, in action, um the increase in price movement and then from kind of April onwards, the expectation certainly is we'll enter into another bull cycle. We'll wait and see how much all of that plays through. But also we'll also see the size of that because what's also going to come into play and what happened in prior cycles is far more of that institutional money is going to be there. The RB A uh what back in March announced the pilot programs to test out CBD CS, right? And, and then big names like Mastercard jumped into the pool A NZ the Australian Bond Exchange. And I'm curious how all of this is impacting the crypto space right now in Australia. And you know, when you expect something to come out with uh A CBD C um and, and your thoughts there. So that's been a really, a really interesting project, the whole CBD C um project, you know, end to end because of the, as you say, the institutions that have come in to join alongside crypto alongside payments alongside traditional finance. So an absolute boon for both was also really good is the fact it happened in a bear cycle. I think if this had happened in a bull, it would have been an awful lot more noise and bluster around it. I think they've been given the opportunity to, to to properly experiment, to properly run PSEs. These aren't all going to work. That's the point. I think it creates a matrix for Australia in traditional finance in crypto as we move, you know, into the next, I suppose the Blockchain economy that is to come like that's hugely beneficial. Probably not something that we're going to see the benefit of in 12 months time. It's more like 18, 2 years, three years time that we start to see that really, really blossom. And I have to say Singapore, I think did that really, really well for my time in Singapore, the way that they tried to end traditional finance in fintech and then Blockchain, I thought that was very clever. And I think, you know, hopefully Australia has picked up on that, you know, and then the irony of Commonwealth Bank saying it will restrict, uh, crypto payments to $10,000 per month. So on one hand, you have this, you know, innovation where people get to participate. There, there's a, you know, there's a playground sandbox effect, you know, and, and anything is possible and then the real life day to day is, you know, this kind of restricting the, the crypto payments. Um obviously the intention to catch fraud and scams, but, you know, these restrictions seem like they would have, you know, a negative impact. Um It doesn't, it feels more restrictive than innovative, you know, as Australia grows, you're in an environment where OK, that happens. And does that threaten liquidity? Does that potentially push capital offshore? So there's a lot with that. I think that uh the CB a decision, we understand the data that's come out with regards to the number of fraudulent scam money like that exits from the banking industry through crypto exchanges. It's not that the crypto exchanges are corrupt or it's not that the, the Cryptocurrency itself, there's anything wrong with it. It's simply it's the escape route for a number of those scams and what this the bank reactions to it have been now have been. Ok. Well, we can't, you know they were, they were getting the pressure around, they have to do something with scams. They saw the sheer percentage points that were going out through crypto exchanges. And so decided to put the pressure point on there. What I think needs to happen with that conversation is not just that the pressure is put on banks or that the pressure is put on crypto exchanges. There, there is and everyone is saying it, you need a whole cross body collaboration, but you also need a huge amount of education in Australia around what's happening with scams. Why, why are people so vulnerable to them in Australia compared to other countries that needs to be rooted out and understood and educated on the the the decisions then to, to put those restrictions in place absolutely haven't have impacted negatively. Um A AAA vast number of our crypto users. I know for ourselves, we see it in client feedback all the time, you know, repeated attempts to try and deposit money and they're being rebuffed by one of the big four. That's, that's really challenging for us as a business. You've been an advocate of the industry's interaction uh with regulators. And uh when we come back, take a quick short break, we're gonna deep dive into crypto regulations in Australia with Caroline when we return, stay with us from homes to art gold to government treasuries. More and more countries are embracing tokenization of real world assets in Australia. Token Mapping seeks to build a deeper understanding of digital assets. How will existing regulations apply to crypto? We find out? All right, welcome back to word on the block. And you know, Caroline, I note that not every business is created equally and it really takes, it really takes um leadership but also making sometimes really tough decisions to, to not necessarily always go for the bottom line. Um You know, you, you've noted that a few times uh that over the past couple of years, the the fraud and the hype of no doubt which you benefited from. But where did you also hold back? Probably the single biggest and most obvious one is in our listings, we list, I think less than 30 trading pair and that during the bull was a hard line to hold. We do that because we look at the projects quite forensically as much as best as we can with the best of information that's available to us, we get legal opinions. We have a technical review, we have a client review, like we view it across those different verticals within the business because we want to make sure that what we list to the best of our ability has got some longevity has got some, some, some, some kind of legs to, it's got some benefit to, to the investor and to the kind of Blockchain economy more broadly doesn't mean we always pick a winner, but we certainly try to you know, use that kind of tools of refinement around what we select. Um And that's because we want to have a business that's going to be around for, for as long as we possibly can and, and, and try not to kind of cut the legs out from under the investors. The shorthand test. And I say this all the time, the shorthand test for that is if my, because my dad trades on the exchange. And so if my dad thought this, you know, whatever the project might be, how would my mom react? Can I explain it to my mom? She doesn't kill me. You know what we're experiencing right now on exchanges with Cryptocurrency, I would hearken to. It's probably not going to look a lot like what we're going to see in the future. I think the future very much is the tokenized expression of the assets that we're trading in right now. It could be equity, it could be real estate, it could be gold, it could, could be commodities in that way. You know, how are these kind of tokenized future products? How are, how, how is Australia thinking about that? And I, and, and I bring that up because, you know, the token mapping was, was an important step in establishing crypto framework in Australia. Um I believe the consultation ended in March. How, how did that, how did that go? So we're expecting the results to come out probably the tail end of this month, I think is, is the, the is the general sense on that, that's a really ambitious project to undertake. And I don't think that it's necessarily have been appreciated the same degree of the year trying to figure your way through that maze and then set it against the the framework of what currently exists in Australia. Hugely ambitious, hugely ambitious. So we wait and see what they come out from our point of view. It was a very um positive consultation. Um And certainly the tone I got from it was um positive and collaborative, not collusion or whatever the word would be. Um But certainly the impact was, you know, we're coming at it with an open mind and we want to take on board the industry feedback, we are open to what it is that you have to say. Um And they're willing to put the work in and come back on a numerous occasions. It wasn't just one and done numerous occasions. So I've got a degree of faith that it's been conducted in, in as open a manner as possible. And obviously, they also heard from people who, who, you know, have different views on, on crypto and Blockchain and so forth and as they should. So we'll see what they come out with. But to the, to the point around real world, you know, assets in tokens, 100% is the future. I don't think that I don't even think that that's up for discussion. Certainly not amongst the people within the industry. There's so many benefits that come to it, but also then the movement of illiquid assets into a more liquid form is just gonna, you know, open up so much more liquidity within broader financial services using, using crypto and Blockchain. It's just fantastic. We list a gold token at the moment on our platform and there's a couple of other gold tokens that are out there. Um I don't think necessarily that right now there is as much appetite for traditional financial products, although gold is not a financial product, traditional assets in crypto yet because I still think we're at the very early. Um and they are, they are gung ho about crypto specifically, but as time rolls on, it's just so much more convenient to be able to use something that you can trade with such speed and such transparency. You know, it's, it's just the inevitability of you can't hold back the tide, right? It's just this is where it's going, it's it's going there, it's where we're going at forecast labs. Uh You know, these are data tools that need to exist to support that system that is coming. I know that you're building towards that future. We are as well and uh there's so much to talk about, but I think we'll catch up in a few years from now when all of this, we're gonna look back and we're gonna say, do you remember when I think that conversation is, uh, what, in six months, six months to about eight months? I think we'll catch up, we'll catch up in about, uh, half a year and we're gonna have that conversation. Yeah, but you're looking at it going, I can see how many new businesses are going to be built in this next cycle that are going to just be a jet pack to what we, what we need. And it's so as I said, people would say, exciting, but it really is, I am such a nerd for this subject because you, you know, pass me the popcorn. How often do you get a ringside seat to this kind of amazing innovation and change in an industry that doesn't really generally do a lot of this, you know, we had the Big Bang, but that was, it was, you know, in the eighties and nineties now we're Rebecca again. So, yeah, I'm exhilarated. Well, listen, thank you because you've given our audience uh uh a, a ringside seat for sure. Um And, and getting to participate and observe through your eyes. Um And I have to say, you know, you've got more than, than uh a, a front row seat. You, you're, you're, you're, you're in the orchestra, um uh you know, creating the experience that we're all that we're all participating in right now. Caroline. It's, it's always a pleasure to hang out with you and I really appreciate it. And it's, it's, it's not rare to have uh a female leader like you in this space. Um But it is uh it is one that I thoroughly enjoy and I, I think we should have more of. So anyway, it was great to have you on. Really appreciate it. Thank you very much. Thank you and thank you everyone for joining us on this latest episode of Word on the Block. I'm Angie Lau forecast editor in chief until the next time.

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