The Australian Stock Exchange (ASX) warned about the risks of storing digital assets on custodial accounts at centralised trading platforms. The organisation noted that their clients do not have access to the private keys to their wallets.
ASX’s commentary came in response to a request by the Australian Senate’s Special Committee on Financial and Regulatory Technologies. The committee is conducting a lengthy discussion on the opportunities and risks associated with the digital assets sector.
ASX noted that access to assets on major blockchain platforms is achieved through a public-private key pair. De facto control of the private key gives the holder the right to dispose of the funds.
“In this sense, access to the private key can be likened to property ownership,” the document says.
ASX’s Chief Technology Officer Dan Chesterman argued that the fact that access to the private key determines control over the digital assets creates certain risks. In particular, customers of centralised Bitcoin exchanges are vulnerable to security breaches on such platforms.
He also added that unscrupulous companies may “covertly or without authorisation” dispose of users’ funds.
“Cryptocurrency exchanges can provide an attractive user experience for many Australians. However, as experts note, these storage mechanisms carry certain risks, many of which relate to private-key management,” Chesterman said.
To address this threat, ASX recommended that the committee consider a range of possible measures:
- introduce a disclosure requirement regarding cryptoassets, including the terms of custodial agreements and the main risks for users;
- obligate cryptocurrency custodians to comply with the basic standards of traditional markets, including capital, as well as technological, operational and governance concerns;
- develop requirements to ensure independent custodians on such core issues as the legal ownership of the entrusted digital assets.
In late June, ASIC published a consultative report on the feasibility of the use of cryptocurrencies as the underlying assets of exchange-traded products. The regulator allowed the listing of such instruments on the ASX subject to adequate safeguards.
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