The Australian government released crypto and digital asset regulation recommendations to safeguard consumers on Oct. 16.
The proposed reforms (pdf) would apply to entities providing Australians and businesses access to digital assets, such as cryptocurrencies, NFTs, and other digital tokens.
The paper, titled “Regulating Digital Asset Platforms” recommends making crypto exchanges and digital asset platforms subject to Australian financial services laws. Further, digital asset platforms holding over $1,500 of an individual’s assets or $5 million in aggregate could be required to have an Australian Financial Services Licence.
The federal Treasury said the proposals were essential to crypto reform while ensuring all consumers and businesses could explore the benefits.
The paper outlined current policy problems, including recent failures leading to considerable consumer losses. For instance, the collapse of FTX affected approximately 50,000 Australian consumers.
FTX, one of the world’s largest cryptocurrency exchanges, rose to prominence in 2019 before crashing in 2022. The founder and CEO, Sam Bankman-Fried, is now facing trial after his fortune went from nearly $16 billion to zero within days.
The common factors among consumer losses were significant loss of assets, ineffective management practices, inadequate governance structures, poor operational resilience, fraudulent activities, and widespread conflicts of interest, according to the paper.
Meanwhile, Treasurer Jim Chalmers said digital asset platforms must meet specific obligations.
“This will include minimum standards for holding tokens, standards for custody software, and standards when transacting in tokens,” Mr. Chalmers said.
He said the government would ensure the reforms align with other jurisdictions while creating new “bespoke obligations” in the highest-risk areas.
“Collapses of crypto platforms, locally and globally, have seen Australians lose their assets or be forced to wait their turn amongst long lines of creditors,” he said.
“The proposed reforms seek to reduce the risk of these collapses by lifting the standard of the operation of platforms and increasing oversight.”
Feedback on the proposal paper closes Dec. 1, and consultation for draft legislation will continue in 2024.
Australia Locked in the Slow Lane
The government’s move comes after a private member’s bill sits before Parliament to regulate digital assets.In April, Senator Andrew Bragg introduced the Digital Assets (Market Regulation) Bill to the Senate to require digital asset exchange or service providers to hold an Australian Securities and Investments Commission (ASIC) or foreign licence.
Further, the bill includes licensing for exchanges, custody requirements, and stablecoins.
Banking institutions would also need to meet reporting rules.
Mr. Bragg said the bill would “put Australia back into the race to regulate,” protect consumers, and promote digital currency investment.
Further, the Senate Select Committee made 12 recommendations to regulate digital assets in October 2021.
The former government adopted 11 of them, and the Treasury began public consultations on custody and licensing requirements on March 21, 2022.
Mr. Bragg said, “These measures provided a basis for Labor to complete these regulatory reforms.”
However, in response to the Oct. 16 recommendations, Mr. Bragg said Australia was “locked into the slow lane on crypto reform” after the previous measures.
“There is a bill in the Parliament today that would do virtually everything the government now says is important,” he said.
Further, he said, “The 2022 paper, ‘Crypto asset secondary service providers: Licensing and custody requirements,’ is effectively a rehash of the new recommendations.”
“The Proposal Paper released today is just that, a Proposal Paper. Crypto consumers will continue to be exposed to an unregulated market until these proposals become law.”
Open to Reforms: Central Bank
Meanwhile, Reserve Bank Australia (RBA) assistant governor Brad Jones said on Oct. 16 that the bank’s recent pilot project supported reforms for “digital financial services innovation.”The project explored the role of central bank digital currency (CBDC) in the future payment system.
CBDC is a new digital money form for households and firms to use for everyday payments. CBDC could be likened to a digital version of banknotes.
Mr. Jones said regulation enhancements, “informed by the United Kingdom’s (UK) recent experience, also seem worthy of further consideration.”
For example, cryptocurrency exchange Binance would stop accepting new customers in the UK in compliance with new regulations restricting promotions from overseas digital asset firms after a string of 2022 collapses sparked worry about the industry.
However, he said, arranging a monetary system to support the Australian economy in the digital age is still a key priority.
Further, he said challenges include ongoing “regulatory uncertainty and compliance obligations.”
“If a smart contract on a programmable ledger goes awry, cross-border and anti-money laundering responsibilities do not disappear, but who is accountable?” he said.
“We should be wide-eyed to these challenges. It’s very possible they can be overcome, but more work by policymakers and industry is needed.
“Our overarching position is that we remain open-minded about the functional forms of digital money and supporting infrastructure that could best support the Australian economy in the future.”
