The Council of Financial Regulators (CoFR) is aware of the ever-evolving landscape surrounding the deployment of technologies. While the underlying technology, it is important to acknowledge that questions persist regarding how some of these use cases can truly benefit the broader economy and society.
In the realm of crypto assets and cryptocurrencies alone, there remains a degree of uncertainty regarding how consumers and financial markets will ultimately derive tangible advantages from the current applications and their potential implications.
Nevertheless, CoFR encourages the ongoing exploration of these technologies’ potential to usher in greater competition and foster increased innovation within the realm of financial services. They recognise that these innovations hold the promise of significantly impacting the financial sector and, by extension, the broader economy. A prime example of this potential lies in the capacity to facilitate secure transactions without necessitating the involvement of conventional trusted financial intermediaries.
The deployment of blockchain and related technologies has the potential to revolutionise traditional financial systems, introducing efficiencies, security, and accessibility that were previously unimaginable. However, it is also acknowledged that the path forward is not without its complexities and challenges.
CoFR is committed to closely monitoring these developments, engaging with stakeholders, and actively participating in shaping the regulatory frameworks that will govern the responsible adoption and integration of these transformative technologies. In doing so, CoFR seeks to strike a balance between fostering innovation and ensuring the integrity and stability of financial markets for the benefit of all stakeholders.
While the emergence of cryptoassets undeniably brings forth a myriad of opportunities, it is equally evident that this phenomenon introduces a set of additional complexities and risks . Within this evolving landscape, CoFR holds concerns about the potential harm that may befall individual consumers and investors, as well as the broader systemic risks that these digital assets might engender. These risks encompass a wide spectrum, ranging from the realms of monetary stewardship and financial stability to issues related to consumer protection, competition, money laundering, terrorism financing, and other policy considerations, including tax evasion and the perpetration of cybercrime.
Moreover, it is essential to underscore that the current state of the crypto assets marketplace remains characterised by an inherent degree of speculation and extreme volatility. Unlike regulated financial products, crypto-assets do not adhere to the same set of consumer protection measures, which are pivotal in safeguarding the interests of investors.
Consequently, unless a crypto asset is incorporated as part of a regulated product, direct exposure to these assets provides limited legal recourse for investors in the event of significant financial risks. Investors are exposed to the looming spectres of hacking, scams, or fraudulent activities, which can have dire consequences for their financial well-being.
It is crucial to note that within this intricate ecosystem, only select segments, such as New Zealand-based trading platforms, are subject to limited regulatory oversight. As a result, CoFR reiterates the guidance provided by the Financial Markets Authority (FMA), which advises New Zealanders to exercise utmost caution and only invest funds that they can afford to lose in the realm of crypto assets.
Furthermore, CoFR emphasises the importance of utilising New Zealand-based trading platforms, which offer a certain degree of regulatory protection and adhere to local guidelines. In navigating this dynamic landscape, the safety and financial well-being of investors remain paramount concerns, and prudent decision-making is imperative.
“We emphasise the high-risk nature of ‘cryptocurrencies,’ including stablecoins. These digital assets lack backing from tangible assets and aren’t regulated for prudential or consumer protection. This exposes users to potential value loss due to issuer misconduct, loss of confidence, high price volatility, and potential impact on monetary sovereignty,” the Council emphasised.
Now, CoFR is actively monitoring global regulatory developments related to these assets, in alignment with the concerns raised in New Zealand.
CoFR member agencies are engaged in ongoing efforts to closely track advancements in crypto assets and their underlying technologies. For instance, the Ministry of Business, Innovation & Employment is exploring broader applications of blockchain technology as part of its initiatives focused on the future of business.
Simultaneously, the Reserve Bank is assessing the implications of crypto assets on New Zealand’s monetary and payment systems, ensuring a fair and flexible environment that fosters responsible and beneficial innovations.
