The Australian Securities and Investments Commission (ASIC) is facing challenges related to the supervision of entities implementing innovative business models. This becomes clear from a speech delivered today by ASIC Chair Joe Longo at the AFR Super & Wealth Summit.
Mr Longo commented on decentralised autonomous organisations (or DAOs, being a whole new form of collective enterprise). ASIC is now trying to determine what exactly DAOs are and how they can be regulated.
DAOs are organisations governed by artificial intelligence in the form of smart contracts, using blockchain technology, to record transactions with and between their members and third parties. No boards of directors or employees in sight, and the rules of engagement are encoded in smart contracts.
DAOs work on the basis that the ‘rule of code’ replaces the ‘rule of law’. The modern corporation, with its limited liability and boards of directors, all of whom are now required to apply for lifelong, unique director IDs, seems a world away from this virtual community.
ASIC is concerned that, in the case of DAOs, it is not clear who is accountable if things go wrong, or don’t go as intended or anticipated. Nor is it clear how a DAO itself can be held accountable in a court of law.
The policy challenge for traditional forms and methods of regulation is readily apparent. Legal analysis of how DAOs work is at an early stage, with many unanswered questions, such as what is the nature of a member’s interest in a DAO? Is it like a share in a company or a unit in a managed investment fund?
ASIC is working closely with Treasury to assist in answering these questions.