The Australian federal government has recognized the need for regulation in the cryptocurrency industry and is set to introduce new regulations requiring crypto exchanges to obtain a financial services license. This move comes in response to a series of international hacks and cases of poor risk management, including the collapse of U.S.-based crypto exchange FTX, which resulted in significant losses for thousands of Australians. The government aims to protect consumers and address the unique risks associated with cryptocurrencies.
Rather than regulating individual tokens or cryptocurrencies, the government will focus on regulating crypto exchanges. Exchanges holding more than $5 million in aggregate or exceeding $1,500 for any individual user will be required to obtain an Australian Financial Services License (AFSL) issued by the Australian Securities and Investments Commission (ASIC). This will ensure that exchanges adhere to stringent standards, such as providing transparent and fair services, managing conflicts of interest, and meeting solvency and cash reserve requirements.
In addition to obtaining an AFSL, crypto exchanges will also be subject to asset custody rules to enhance consumer protection within the sector. The regulations aim to bolster consumer protections for the growing number of Australians who collectively hold billions of dollars worth of cryptocurrencies through various exchanges operating in the country. By enforcing these rules, the government intends to prevent hacks and improve risk management practices within the industry.
According to ASIC Chairman Joe Longo, regulating crypto is about establishing minimum standards that are similar to traditional finance standards. He emphasized the importance of holding the cryptocurrency sector accountable to the same high standards expected in other industries. To achieve this, the government plans to introduce additional obligations for exchanges, including standardizing contract forms and implementing custody software and token transaction standards inspired by regulations in Europe, Britain, Canada, and Singapore.
While the regulations aim to enhance consumer protection, they also strive to strike a balance that promotes innovation. The Treasury acknowledges the growing role of blockchain technology and tokenization in financial markets and aims to create regulations that accommodate the increasing tokenization of assets. This approach ensures that the industry can continue to innovate and develop while ensuring adequate safeguards for consumers.
Public consultation on the government’s plans will continue until December 1, with an exposure draft of the proposed legislation set to be released in 2024. Crypto exchanges will have a 12-month transition period to adapt to the new regulatory framework once the rules come into force. Tokens that function as financial products will fall under existing corporate laws, while non-financial tokens, such as those used in video gaming and non-fungible tokens (NFTs), will remain unregulated. However, exchanges dealing with non-financial tokens will still require AFSLs, and certain obligations will be imposed on activities such as trading, staking, and fundraising for non-financial products.
The introduction of new regulations for crypto exchanges by the Australian government is a positive step forward in ensuring the protection of consumers and the stability of the cryptocurrency industry. By focusing on exchanges and implementing stringent standards, the government aims to prevent future hacks and poor risk management practices. Additionally, the regulations aim to strike a balance between consumer protection and innovation, supporting the growth of blockchain technology and tokenization while maintaining safeguards for consumers. With public consultation ongoing, the government is actively seeking input from industry stakeholders to ensure that the regulations effectively address key concerns and challenges in the crypto sector. Overall, these regulations contribute to the maturation of the cryptocurrency industry in Australia and establish a foundation for its continued growth and development.
