Australia Plans New Crypto Framework Regulations

As part of developing a fit for purpose digital asset regime to help build a more dynamic and competitive economy, the Australian Government on Friday proposed a new crypto framework regulating exchanges under existing financial services laws and has promised to tackle de-banking, the Treasury Department said.

In a six-page statement, the Treasury department said that crypto exchanges, custody services and some brokerage firms that trade or store crypto will come under the new laws. The government is also planning to release a draft of the legislation for public consultation.

“Our legislative reforms will extend existing financial services laws to key digital asset platforms, but not to all of the digital asset ecosystem,” the department said.

The regime imposes similar compliance requirements as other financial services in the country, such as following rules safeguarding customer assets, obtaining an Australian Financial Services Licence and meeting minimum capital requirements.

It may be recalled that the government has initiated a series of industry consultations in August 2022 to draft a crypto regulatory framework.

Small-scale and start-up platforms that don’t meet specific size thresholds will be exempt, along with firms that develop blockchain-related software or create digital assets that aren’t financial products.

Payment stablecoins will be treated as a type of stored-value facility under the Government’s Payments Licensing Reforms; however, some stablecoins and wrapped tokens will be exempt.

“Dealing or secondary market trading in these products will be not treated as a dealing activity, and platforms where they are traded will not be treated as operating a market simply because of that trading activity,” the statement said.

De-banking                           

According to the statement, the government has also promised to work with Australia’s four largest banks to better understand the extent and nature of de-banking. There will also be a review into a central bank digital currency and an Enhanced Regulatory Sandbox in 2025, allowing businesses to test new financial products without needing a license.

“The Government recognises that de-banking, which occurs when a bank declines to provide banking services or withdraws banking services from existing customers, is a global challenge. The digital asset sector is a key sector affected by de-banking,” the statement said.

De-banking can have a devastating impact on de-banked businesses and individuals. It can also stifle competition and innovation in the financial services sector, and negatively impact Australia’s economy, it said.

The Government’s proposed licensing frameworks for digital asset industry participants and payments providers will help improve the risk management capability of businesses within the sector.

Central Bank Digital Currency

Treasury is working with the Reserve Bank of Australia (RBA) to explore the feasibility and potential benefits of an Australian dollar central bank digital currency (CBDC). The RBA and Treasury has already released a joint paper on 18 September 2024 summarising research on CBDC.

The report highlights that while a clear public interest case is yet to emerge to issue a retail CBDC, issuing a wholesale CBDC could play an important role in enhancing the functioning of wholesale markets in Australia.