Digital asset providers will come under existing financial services laws and need an AFSL under proposals just released.
Government outlines rules regime for crypto platforms
Treasurer Jim Chalmers has released regulatory proposals for crypto exchanges and digital asset platforms that would make them subject to existing financial services laws.
The reforms would introduce a type of product called a digital asset facility that would be considered an asset-holding arrangement.
The proposed framework would recognise certain asset-holding arrangements as financial products and the existing AFSL framework would apply to any person “carrying on a financial services business in Australia” in relation to a digital asset facility.
The proposal paper said an intermediary business like a broker would need to be licensed to provide services that involved dealing in digital asset facilities including those not licensed or located in Australia.
Digital asset facilities would also be required to meet minimum standards that largely replicate the minimum standards for financial products and services that hold assets.
“This includes the requirement to hold financial products on trust. The minimum standards for holding assets would be tailored to include ‘additional standards for holding tokens’,” the paper said.
“In addition, the minimum standards would permit additional types of ‘true’ custody arrangements for non-financial products, such as bailment. This tailoring means digital asset facilities would be able to safely hold any type of asset. The minimum standards for holding assets will apply to all digital asset facilities, including ‘custody-only arrangements’.”
Dr Chalmers said the Albanese government was acting methodically to ensure that consumers were adequately protected.
“Our proposals have been designed to ensure they are consistent with other jurisdictions, adopt existing financial service laws as appropriate and create new bespoke obligations in the areas of highest risk,” he said.
The Treasurer said that the collapse of crypto platforms, both locally and globally, had seen Australians lose their assets or be forced to wait their turn among long lines of creditors.
The proposed reforms would aim to reduce the risk of collapses by raising the operating standards of platforms and increasing oversight and referred to the recent collapse of FTX, which impacted about 50,000 Australians.
“The failures of digital asset platforms are symptomatic of unregulated asset holding intermediaries,” the paper said. “Such risks are further amplified by the vertically integrated nature of digital asset platforms – where various functions, like trading and holding assets, are managed within a single organisational structure
“While the risks that led to these failures are the same risks mitigated by Australia’s financial services laws, digital asset platforms that do not deal in financial products are not subject to financial services laws.”
The paper said that the government intended to address the significant risks and potential harm associated with digital asset platforms while fostering innovation and the safe use of digital assets and distributed ledger technology.
“The framework outlined in this paper proposes to regulate digital asset platforms within the existing Australian financial services laws while ensuring all consumers and businesses have the opportunity to safely explore and share in any benefits of the technology,” it said.