The Australia Securities Exchange (ASX) has weighed in on the issue of crypto custody amid the ongoing discussions within the country’s Senate Select Committee on Financial Regulatory Technology.
In a submission to the committee on July 16, ASX highlighted crypto custody on centralized exchanges as a significant risk factor for investors.
The ASX submission outlined the implications of crypto exchange custody arguing that investors do not have access to their private keys while their funds are domiciled in these platforms — another way of saying “not your keys, not your coins.”
According to the ASX, crypto funds left on exchange wallets are vulnerable to cybersecurity risks in the form of theft by hackers. Crypto exchange hacks used to be a regular occurrence in times past with over $53 billion worth of virtual currencies stolen from platforms between 2011 and 2020.
However, improved security measures on exchanges have stemmed the tide of these thefts significantly but the odd exchange hack still happens every so often.
Apart from cybersecurity problems, the ASX submission to the Senate committee also stated that investors who chose crypto exchange custody run the risk of their funds being handled in an undisclosed or unauthorized manner.
While noting that cybersecurity risks are not unique to crypto exchanges alone, the ASX outlined measures such as regulation, appropriate asset capitalization, and insurance as quality assurance protocols imbibed by legacy asset custodians.
As part of its submission to the committee, the ASX called for disclosure requirements for crypto exchanges as well as independent assurance protocols to better safeguard assets on their platforms. The securities exchange also recommended the introduction of core standards for digital asset custody services.
Given the absence of clear-cut crypto regulations in Australia, the ASX advised that such measures be included in a broader cryptocurrency regulatory framework for the country.