ASIC boss Joe Longo warns social media is turbo-charging scammers and crypto currency’s alternative reality

Australian Securities and Investments Commission boss Joe Longo has warned that social media is turbo-charging the activities of people pushing scams and dodgy investments. Rogues still employ classic tricks of exploiting trust and human vulnerabilities, but Mr Longo said they have been armed this century with an array of new tools to ply their craft. And crypto-currency is potentially the ultimate tool given its lack of connection to pesky institutions such as governments, regulators and even mainstream media. “The social media phenomenon is really quite extraordinary,” Mr Longo said. “People are increasingly reliant in their perception of reality and what is going on about the economy. “They’re relying on social media – they are not reading the Financial Review, they’re not reading books. They’re getting they’re material from what they believe to be a trusted source. “One of the reasons that crypto has taken off is the ideological aspect. They see it as an alternative. They want something that is not controlled by the government. “We are entering a world of a different kind of reality.” He gave the warning in an interview with The West Australian while on an extended return stretch to Perth, where he first came into the public eye in the 1980s working at establishment law firm Parker & Parker for big-ticket clients including Alan Bond in the 1980s. Mr Longo joined the then Australian Securities Commission in 1996 and rose to be the national head of enforcement at what became ASIC. He left in 2001 for senior roles in the Asia-Pacific region and Europe for Deutsche Bank, before returning to Perth in 2019 to work with Parker & Parker’s modern incarnation Herbert Smith Freehills. The Federal Government recruited him back to ASIC last year after the ousting of young-gun chairman James Shipton, landing him the job of rebuilding confidence in ASIC after the Banking Royal Commission and as it faces a new raft of technological challenges. He pointed to the report released in October by Senator James Bragg on how this nation might deal with the many opportunities, risks and legal ambiguities of blockchain technology and crypto currency. In addition to mapping work to determine the best way to characterise digital asset tokens, the inquiry recommends establishing a licensing regime for digital currency exchanges and establishing custody regimes for digital assets. ASIC and Treasury officials are working together to develop the recommendations of the Bragg inquiry. The Bragg inquiry also recommended Australia develop a new legal structure called decentralised autonomous organisations, or DAOS, to recognise the way people do business and carry out electronic agreements on blockchain systems. Mr Longo has little doubt that DAOS (pronounced ‘dows’) plus digital currencies and exchange will become part of ASIC’s ever-growing regulatory brief. “It will be coming our way,” he said. “DAOS are very legally ambiguous and very vague things,” he said. “A lot will depend on where the government lands - but we have got a long way to go before we figure these out.” It is against this regulatory uncertainty and quickening pace of investment change that ASIC must process 8000 to 11,000 misconduct reports about the activities of financial industry players, plus thousands of more reports that must be filed by financial services licensees whenever they may have breached their regulations. ASIC has repeatedly copped public criticism over the past two decades for not acting quickly enough against dodgy industry players or on picking up patterns of misconduct by powerful banking and financial services players. Faced with allegations of delays in ASIC investigating the Sterling First lease for life scheme, Mr Longo said he “took very seriously” his duty of explaining to a Senate inquiry and to hurt investors “what went wrong and what could have been done differently”. Mr Longo said like all other regulators, ASIC was not resourced to take on everything or what the community expected it to take. “Regulation and enforcement is all about choices — choices about how we are going to use our limited resources,” he said. To identify problems in the masses of data and reports landing with ASIC, Mr Longo believes artificial intelligence tools and techniques are essential to speeding up initial assessment and identifying problems. ASIC has already done a lot of work with the banks to allow for bulk filing of their breach reports so they can be examined and decisions can be made about what might be investigated using artificial intelligence. Mr Longo said the regulator needed to find ways to “to use technology so that we investigate as quickly as possible and … then get cases to court in a reasonable time”. “The one thing that has not changed since the 1990s is the challenge of getting things to court in a timely way and for investigations to be done in a timely manner,” he said. And the other thing that has not changed is many investment promoters are still using their community connections, including cultural or religious links, to bring in investors. With this connection comes trust and with trust comes a big advantage in pushing an investment that is complicated or offering a return that might seem extraordinary at first glance. Mr Longo said technology and social media had amplified the risks of trust being exploited by a person offering a questionable investment. “When the opportunity arises to invest with that person, you are pushing through an open door,” he said.