CBA crypto move will ‘shake up the industry’



Not all exchange operators were enthused with the move. Adrian Przelozny, CEO of Independent Reserve, which recently secured a licence to operate in Singapore, said it was frustrating to see CBA partner with an exchange based abroad – Gemini is a United States company – rather than an operator in the local market.Independent Reserve CEO Adrian Przelozny: “It’s disappointing CBA went with an overseas player.”  The move to partner with Gemini is consistent with CBA’s approach to the buy now, pay later sector, where it invested in Swedish-based Klarna and helped Klarna launch in Australia to compete against Afterpay and Zip, rather than backing a local horse.“It’s disappointing that CBA went with an overseas player and didn’t engage with local players at all. We will be reaching out to the other Australian banks now,” Mr Przelozny said.Advisers said the CBA embrace of cryptocurrencies – including bitcoin – would ripple through the industry and drive more investment to respond to demands from younger customers.“This announcement from CBA reflects a broader movement by the global banking and payment industry in acknowledging the growing customer interest in and adoption of cryptocurrencies, most notably in specific segments like Millennials, tech-savvy and finance professionals,” said Ian Pollari, the global co-head of fintech at KPMG.While it will take time for average customers to store and use crypto in the CBA app – which will begin a pilot this month and roll the service out more broadly next year – “this development still represents a significant step along the journey to bring digital currencies into the forefront of mainstream financial services,” he said.Derisking debankingSeveral players in the local crypto space hoped the validation by CBA would result in it taking more open and considered approach to providing financial services to the sector more broadly than its own offering.One fintech, who has struggled to get banking services from major banks, said they hope the CBA move “reduces the debanking of crypto and brings not only bitcoin but DeFi [decentralised finance] and other blockchain into the mainstream.”Senator Andrew Bragg, who chaired the Senate select committee which just two weeks ago proposed a new regulatory regime for the crypto economy, said he welcomes “the further mainstreaming of cryptocurrency” and the move suggested the inquiry “was right to identify the utility, agency and employment dividends of crypto”.However, he said ongoing scrutiny is required to ensure regulated banks continue to support innovative start-ups experimenting with decentralised technologies. The final report of his committee called for bank due diligence standards on start-ups to be clarified through the Council of Financial Regulators.“Perhaps now that the banks have adopted cryptocurrency, they’ll stop “debanking” Australians,” Senator Bragg said on Wednesday morning. “The behaviour of banks routinely closing business and personal accounts has unfairly hurt many Australians and the economy at large.”In a conference call, Mr Comyn said CBA had no board or other policy to not bank the crypto sector, even though the Senate committee found debanking to be rife across the industry.“We do support some crypto providers, we don’t have a policy against it,” Mr Comyn said.“Some of those who would like to be banked by the commercial banking sector will continue not to be, based on their business model and the risk profile… It is a case-by-case [assessment] to understand their business model and be comfortable and satisfied the controls we have in place are sufficient to manage the risk we take on by banking that particular customer,” he said.“Over time, the industry matures.”‘Clear signal’Steve Vallas, CEO of Blockchain Australia, said CBA had provided “a clear signal that regulatory certainty will be sufficient for this to be able to operate. When combined with Bragg and international developments, it says: there is enough certainty to proceed [to offer crypto],” he said.He also said other banks would have to examine their strategies or risk bleeding young customers to CBA. “The other message is to other financial institutions in Australia that they could miss commercial opportunities by waiting, and it sends an international signal that inspires confidence that one of the biggest financial institutions in Australia has arrived at this view, and this is something they can be involved in,” Mr Vallas said.“So participation in the sector will grow.”Mr Comyn recognised crypto was a polarising subject in banks, and among CBA’s competitors, some are hoping “regulators will regulate the industry out of existence – but our view is that is unlikely.”The decision to join up with Gemini and Chainalysis, which has just opened an office in Canberra and has clients that include the US FBI, was a response to customers wanting to invest in crypto safely. CBA is a “a named bank with an institution grade offering where they can have confidence and trust,” he said.“We see both opportunities and risk for the financial sector, so we want to participate in that,” Mr Comyn said. “This is an opportunity for us to provide a high-quality and secure offering.”CBA CEO Matt Comyn: “This is an opportunity for us to provide a high-quality and secure offering.” Louise Kennerley“We recognise this is a space broadly defined as being in a bit of regulatory flux globally, and we think it is important to actively support and work constructively with regulators to make sure we are offering a very good proposition to our customers,” Mr Comyn said.Dave Abner, the global head of business development at Gemini, said the exchange was closely focused on security and held a trust licence in New York. He said standards had improved since the Gemini founders, who were also early investors in Facebook, set up the business in 2014.“When Cameron and Tyler Winklevoss first got into bitcoin, it was like the Wild West,” Mr Abner said.“They wanted to create a regulated, intuitional class, easy and safe way to trade and store bitcoin and other cryptocurrencies.”He said CBA would not lead the charge towards higher institutional and user adoption of crypto in Australia. CBA estimates around 8 per cent of the population currently has some exposure.“We think this is a monumental moment, a monumental development for the crypto industry not only in Aust but also globally,” Mr Abner said.‘Comes with risks’Mr Comyn said CBA is working with ASIC, APRA and the Reserve Bank, who are grappling with the regulation of crypto after the Senate committee on Australia as a Technology and Financial Centre (ATFC) two weeks ago called for Treasury to develop a new licensing regime for crypto exchanges including local custody rules.Under CBA’s plans, the custody of the crypto-assets will be protected by Gemini, which is licensed as a trustee in New York.CBA also plans to introduce product warnings, and has been keeping the Australian Securities and Investments Commission aware of its approach to consumer protection.“Of course, investing in cryptocurrency comes with risks,” Mr Comyn said. “We make it very clear customers as part of that process you should only invest what can be prepared to lose.“Of course there is going to be volatility in cryptocurrency, but we see both the demand over time continuing to increase and use cases continue to increase.”CBA will continue to work closely with regulators, including AUSTRAC, which stung CBA for anti-money laundering failures in late 2017.“We have tried to be very open about what we are doing,” Mr Comyn said.Mr Comyn said CBA would not allow transfers from other crypto exchanges, allowing it to control customer onboarding, transaction monitoring and ‘know your client’ obligations.The bank has proposed to AUSTRAC this approach will reduce risk.Payments to comeWith Visa and Mastercard have announcing this year they are extending their reach into crypto, Mr Comyn said on Wednesday that while CBA will not be offering crypto payments immediately, this is something it would think about.“It is about more than a just pure investment,” Mr Comyn said.It was possible that payment functionality is added and he pointed to Gemini having a card attached to its offering.“There are certainly some customers, small at the moment, want to live their life in crypto and would prefer to pay [with it]…We see that as an area where there will be continued innovation.”Mr Comyn’s view goes further than the Reserve Bank, which has not viewed bitcoin as potential payments mechanism.Mr Pollari said the CBA action will “add momentum to cryptocurrencies as payment vehicles”.Moves by the global credit cards schemes this year “may be seen as a future-proofing initiative, especially since cryptocurrency and blockchain infrastructure could be seen as a threat to traditional business models,” he said.KPMG says investment in blockchain and cryptocurrencies heated up dramatically in the first half of this year, with investment more than twice the level seen in 2020, soaring past previous annual record high set in 2018.“We’ll likely see this trend continue, with focus stretching across the crypto ecosystem — from cryptocurrencies and trading platforms to NFTs, alternative asset trading and support structures,” Mr Pollari said.



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