Australia's Crypto Regulation: What You Need to Know

Australia is moving towards a more comprehensive and stringent regulation of cryptocurrency platforms, following the recommendations of a government report released in November 2023. The report, titled Review of the Regulatory Framework for Digital Assets in Australia, proposes to subject digital-asset platforms to the same rules and obligations that apply to financial-service providers, such as obtaining a financial-services licence, complying with anti-money laundering and counter-terrorism financing laws, and adhering to consumer protection and market integrity standards. The report also suggests establishing a dedicated regulator for digital assets, as well as enhancing the powers and resources of existing regulators, such as the Australian Securities and Investments Commission (ASIC) and the Australian Transaction Reports and Analysis Centre (AUSTRAC).

The report argues that the current regulatory framework for digital assets in Australia is fragmented, inconsistent, and inadequate to address the risks and opportunities posed by the rapid growth and innovation of the crypto sector. The report cites the recent collapse of FTX, a crypto exchange that held over $200 million in customer funds, as an example of the potential harm and loss that can result from insufficient oversight and protection of crypto platforms and users. FTX was shut down by ASIC in October 2023 after an investigation revealed that the platform was operating without a licence, had failed to implement adequate security measures, and had engaged in fraudulent and deceptive conduct. The closure of FTX sparked a wave of legal actions from customers seeking to recover their funds, as well as increased scrutiny and criticism from regulators, lawmakers, and the public.

The report’s recommendations aim to align Australia’s crypto regulation with international standards and best practices, such as the Financial Action Task Force (FATF) guidelines and the G20 principles for stablecoins. The report also acknowledges the potential benefits of crypto innovation for Australia’s economy and society, such as enhancing financial inclusion, efficiency, and competition, as well as supporting the development of new industries and technologies. The report states that the proposed regulatory framework would balance the need to protect consumers and investors, maintain financial stability and integrity, and prevent illicit activities, while also fostering innovation and growth in the crypto sector.

The report has received mixed reactions from the crypto industry and stakeholders. Some have welcomed the report as a positive step towards providing clarity and certainty for crypto platforms and users, as well as improving Australia’s reputation and competitiveness as a crypto-friendly jurisdiction. Others have expressed concerns that the report’s recommendations are too restrictive and burdensome for crypto platforms, especially smaller and newer ones, and that they could stifle innovation and diversity in the crypto sector. Some have also argued that the report does not adequately address some of the specific challenges and opportunities of crypto regulation, such as cross-border coordination, interoperability, scalability, privacy, and decentralisation.

The report is not binding or final, but rather serves as a basis for consultation and feedback from stakeholders. The government has invited submissions from interested parties until February 2024, before it decides on the next steps for implementing the report’s recommendations. The government has stated that it intends to introduce legislation to amend the existing laws governing financial services to include digital assets by mid-2024.

The report marks a significant milestone in Australia’s crypto regulation journey, which has been evolving since 2014, when AUSTRAC issued its first guidance on how crypto platforms should comply with anti-money laundering and counter-terrorism financing laws. Since then, Australia has introduced several measures to regulate different aspects of crypto activities, such as taxing crypto transactions, banning initial coin offerings (ICOs), requiring registration of digital currency exchange providers, and granting exemptions for sandbox testing of crypto innovations. However, these measures have been widely regarded as piecemeal, outdated, or insufficient to address the complexity and diversity of the crypto sector.

Australia’s crypto regulation is likely to undergo further changes in the coming years, as the government responds to the feedback from stakeholders, monitors the developments in the global crypto landscape, and adapts to the emerging trends and challenges in the crypto sector. Crypto platforms and users should stay informed and engaged with the regulatory process, as well as seek professional advice on how to comply with the existing and future rules and obligations.