Around 450 Australians are reported by ASIC to collectively have approximately $61 million invested in a set of blockchain mining companies known as NGS Companies.
ASIC says it is “concerned that the digital assets of investors, which are invested in the blockchain mining products offered by the NGS Companies, are at risk of dissipation”.
For that reason, ASIC commenced civil proceedings resulting in the appointment of McGrathNicol as receiver over the companies’ digital currency assets, and of those companies’ directors.
Of greatest concern, ASIC says, was the fact that the NGS Companies targeted “Australian investors to invest in blockchain mining packages with fixed-rate returns, encouraging them to use funds transferred from regulated super funds to self-managed super funds (SMSFs) and then converted into cryptocurrency”.
In doing so, the NGS Companies provided financial services without an Australian financial services licence. [Note: NGS Companies have no affiliation with NGS Super.]
Since these events, ASIC has issued warnings around the management of SMSFs.
“Australians who decide to self-manage their super should consider the risks before using their SMSF to invest in crypto-related investment products such as blockchain mining,” Joe Longo, ASIC Chair, says.
“These proceedings should also send a message to the crypto industry that products will continue to be scrutinised by ASIC to ensure they comply with regulatory obligations in order to protect consumers.”
Can SMSFs invest in crypto?
Crypto assets are not prohibited in SMSFs.
However, like all assets, the Australian Taxation Office says, a crypto investment must be allowed under the fund’s deed, must be in line with the fund’s stated investment strategy, and attracts the same regulatory treatment as other assets held by the SMSF.
According to the ATO, crypto assets are not considered a form of money. Instead, they are capital gains tax assets.
“We strongly encourage SMSFs to seek independent professional advice before investing in crypto assets,” the ATO says.
“When acquiring or disposing of crypto assets, SMSFs must also keep full records of their crypto transactions.”
Where are SMSF trustees going wrong?
Since the proceedings around the NGS Companies, ASIC has released several warnings over “dodgy cold-calling operators and online baiting tactics”.
ASIC’s focus is on high-pressure sales tactics that particularly encourage inappropriate superannuation switching behaviours.
“Some of these cold-calling operators are pressuring consumers in critical retirement-saving years to move their savings when it is not in their best interests, putting them at risk of having less super as a result of inappropriate investments, fees and charges,” says Alan Kirkland, ASIC Commissioner.
“The small subset of financial advisers benefitting from this conduct threaten to undermine the reputation of the rest of the industry.”
ASIC reports observing a significant volume of investment of superannuation savings not only into crypto-related schemes but also into high-risk property managed investment schemes associated with cold-calling businesses.
Kirkland says it’s the responsibility of all in the finance space to help weed out these bad actors.
“Deterring cold calling for superannuation switching models is an ASIC priority, and we will continue to take action, including enforcement action, to protect consumers from high pressure, cold calling practices that induce inappropriate superannuation-switching,” he says.
“Financial advice licensees and super trustees have a critical role to play in preventing this conduct, including by reporting it to ASIC if and when they become aware of the conduct.”
Dodgy cold-callers: Know the signs
Having conducted a review of the tricks of the cold calling, superannuation switching trade, ASIC has developed a useful summary of tactics.
The contact sometimes begins with a post or advertisement on a social media platform such as Facebook or Instagram promoting a superannuation comparison calculator, ASIC says. These calculators are designed to make it appear as if the user’s superannuation fund is performing poorly.
Similarly, cold callers typically offer a free superannuation review, often offering misleading information about costly fees or the fund’s ability to provide for the individual’s retirement. They convince the individual to roll over their superannuation savings into another fund, or into an SMSF, where they are told their returns will be much higher.
“ASIC has a cross-sector project focused on deterring cold calling for superannuation switching models, and will take action, including enforcement action, to protect consumers from high-pressure cold calling practices that induce inappropriate superannuation switching and result in the erosion of superannuation balances,” ASIC reports.
“ASIC began taking action against this type of business model in 2020 with the revocation of the AFS licence of Smart Solutions Pty Ltd and the banning of the adviser and responsible manager. Since 2020, ASIC has finalised other matters in relation to this type of conduct, including numerous adviser bannings, AFS licence cancellations, supervision orders and criminal convictions for hawking (the use of unsolicited marketing for sales of financial products).”
ASIC recommends financial advisors and other licensees avoid any form of referral arrangement with high-pressure sales businesses.
Superannuation trustees should also implement checks and processes that enable early identification of any investment that could result in erosion of the fund’s balance.
“Ultimately, financial advisers, licensees and superannuation trustees should ensure they work to deliver good retirement outcomes for clients and members to uphold member trust and the integrity of the financial system,” ASIC says.
