APRA, crypto and banks – what does the regulator’s recent letter mean?

A combination of risk aversion and broad, poorly-defined timelines makes APRA’s rhetoric around crypto to Australian banks a deep concern.

Last week APRA published an open letter to all APRA regulated entities, that includes all ADIs and other quasi bank operators. The purpose of this letter was to outline APRA’s risk management expectations for crypto assets and the policy road map.

The letter did not introduce any new regulatory requirements, but rather stressed that there is an expectation from APRA that “all regulated entities will adopt a prudent approach if they are undertaking activities associated with crypto-assets.” As to be expected from APRA there was no obvious pro-innovation rhetoric. Instead, the regulator noted the high volatility of crypto assets represents a material risk as exposures increase. 

What is perhaps more worrisome than APRA’s general risk aversion is the proposed timeline for the implementation of clear regulation. No clear guidelines can be expected from APRA until at least 2024. The concern is that this lack of clarity will deter incumbent ADIs from in the meantime expanding digital asset offerings. 

By all estimates, the crypto community in Australia should not be holding its breath for mainstream adoption. Without the heavy hitters of the financial services industry, be they ADIs or superfunds, feeling comfort with regulation, it is unlikely that we will see digital assets and crypto included in investment mandates or product offerings anytime soon.