Australia: Crypto assets 

Latest Developments

The market for cryptocurrencies and other digital assets is developing rapidly with the government reporting that 25% of Australians held or have previously held cryptocurrencies. In December 2021, the Morrison Government agreed in-principle to recommendations made by the Select Committee on Australia as a Technology and Financial Centre on 20 October 2021 (Crypto Report) in relation to consulting on a licensing and custody regime for crypto asset secondary service providers (CASSPrs). On 21 March 2022, the Treasury released a consultation paper on the government’s proposed approach to licensing crypto asset secondary service providers (Consultation Paper).

On 21 March 2022, the Morrison Government requested that the Council of Financial Regulators (CFR) give advice on de-banking for digital currency exchanges, FinTech firms, and remittance providers. The Morrison Government also commissioned a report, and issued terms of reference for a review, from the Board of Taxation on the taxation of digital transactions and assets (e.g. crypto).

In August 2022 the Board of Taxation published its Consultation Guide for the review of the tax treatment of digital assets and transactions (Consultation Guide). The submissions were due by the conclusion of September. In late 2022 the CFR published their advice including four key proposals to:

• Collect de-banking data;
• Introduce transparency and fairness measures;
• Advise the major banks of the Government’s expectation that they provide guidance on their risk tolerance and requirements to the affected sectors; and
• Consider funding capability uplift within the affected sectors.

During the same period, the Treasury commenced a public consultation paper on ‘token mapping’ to identify areas of reform, licensing frameworks, review innovative organisational structures, and to examine custody obligations for third party custodians.

Building on the work carried out by the Morrison Government, on 16 October 2023, the Albanese Government released a proposal to introduce a regulatory framework that would apply to digital asset platforms. The framework aims to address consumer harms in the crypto ecosystem. Under the framework, all crypto exchanges that hold more than $1,500 AUD of any one client, or more than $5 million AUD in total assets would require an Australian Financial Services licence, granted by the Australian Securities and Investments Commission. A new consultation paper has been released and is accepting written submissions until 1 December 2023.

Summary

The Crypto Report defines cryptocurrency as any form of digital currency that is not reliant on a bank or central authority, but rather uses cryptography.

The Crypto Report recognises the potential of blockchain technology and decentralised finance. However, it found that Australia hasn’t yet introduced fit-for-purpose regulatory systems, in contrast with other jurisdictions.  The Crypto Report generally covers a range of topics including cryptocurrencies and digital assets, the ‘de- banking’ of Australian FinTechs, policy relating to neobanks, and the Offshore Banking Unit.

The Committee makes a number of recommendations, including to:

• Introduce a license regime for Digital Currency Exchanges (DCEs), noting that DCEs are required to obtain regulatory licenses in some other countries;
• Undertake a ‘token mapping exercise’ to categorise different crypto-asset tokens;
• Introduce a regime for custodial and depository services for digital assets;
• Introduce a ‘Decentralised Autonomous Organisation’ legal structure which could assist blockchain-based organisations to operate in Australia;
• Review the Anti-Money Laundering and Counter- Terrorism Financing regulations; and
• Clarify taxation rules for digital assets (among others).

Some of these recommendations, such as the proposal to introduce a licensing regime for DCEs, could have a significant impact on regulation in the digital assets sector. It could also mark a shift in regulation in the digital assets sector, which is mostly unregulated.

Broadly, the Consultation Paper considers:

• The regulation of CASSPrs who offer crypto asset custody, storage, brokering, exchange and dealing services, or operate a market in crypto assets for retail consumers, including the potential scope and obligations on providers;
• How to categorise and classify crypto assets to provide more certainty to CASSPrs, consumers and regulators. Feedback on a token mapping exercise will be considered as a part of a separate, future consultation process that will be finalised by the end of 2022; and
• The implementation of mandatory minimum, principles-based custody obligations for private-keys that are held or stored by CASSPrs on behalf of consumers.

Next Steps and Relevance

The Albanese Government has recognised that the crypto sector is largely unregulated and will engage in a ‘token mapping’ exercise to help identify how crypto assets and related services should be regulated. As mentioned above, the Albanese Government started consultation on digital asset platforms to inform which digital assets should be regulated by financial services laws and to establish the foundation for a future custody and licensing framework. Written submissions in response to the consultation paper will be accepted until 1 December 2023. Draft legislation is intended for release by 2024.

In the area of competition and consumer law, the ACCC’s enforcement and compliance priorities for 2023- 2024 include a focus on the financial services sector. The ACCC is set to prioritise ‘promoting competition and investigating allegations of anti-competitive conduct’ in the sector, particularly in relation to payment services.

The ACCC has also commenced proceedings against Meta Platforms, Inc and Meta Platforms Ireland Limited in relation to scam celebrity cryptocurrency advertisements (see chapter 7 for further detail).

*Information is accurate up to 27 November 2023