Australia is aiming to tighten regulations around crypto service providers, with draft legislation that would extend finance sector laws to crypto exchanges.
Assistant Treasurer Daniel Mulino told a crypto conference on Thursday local time that the legislation is “the cornerstone of our digital asset roadmap,” which the Albanese Government released in March.
“This is a preliminary version of the legislation, and we are seeking stakeholder feedback on its effectiveness and clarity before proceeding further,” he said.
Currently, crypto exchanges that simply facilitate trading assets like Bitcoin (BTC) need only register with the Australian Transaction Reports and Analysis Centre (AUSTRAC), which has reported 400 crypto exchanges registered on its books, many of which are inactive.
Draft law to make two new financial products
Mulino said the draft legislation would create two new financial products under the Corporations Act, a “digital asset platform” and a “tokenized custody platform.”
“This means digital asset platform and tokenized custody platform service providers will need to hold an Australian Financial Services Licence,” he said.
The licence would register all exchanges with the Australian Securities and Investments Commission. Currently, only exchanges that sell “financial products,” such as derivatives, must register with the corporate regulator.
Mulino added that the legislation has “targeted rules for key activities,” such as wrapped tokens, public token infrastructure, and staking.
Crypto platforms will also be subject to “a suite of obligations designed to accommodate the unique characteristics of digital assets,” Mulino said, including standards for holding crypto and settling transactions.
“Failures of digital asset businesses have highlighted the consumer risks, particularly where operators pull and hold client assets without consistent safeguards,” he added.
“This is about legitimizing the good actors and shutting out the bad. It is about giving businesses certainty and consumers confidence.”
Heavy penalties, but “low risk” platforms exempt
Breaches of the law are set to carry penalties of up to 16.5 million Australian dollars ($10.8 million), three times the benefit obtained or 10% of annual turnover — whichever is greater — according to a Treasury press release.
Platforms dubbed as “smaller, low-risk,” which hold less than 5,000 Australian dollars ($3,300) per customer and facilitate less than 10 million Australian dollars ($6.6 million) a year, will be exempt from the rules.
The Treasury said the exemption is consistent with the approach to financial products such as non-cash payment facilities, adding the legislation doesn’t look to impose new rules on crypto issuers or those that create or use crypto for non-financial purposes.
Crypto industry backs draft law
Major crypto exchanges operating in Australia have backed the government’s draft law, lauding its decision to bring crypto business under the Australian Financial Services License (AFSL) regime.
Swyftx CEO Jason Titman told Coinpectra he welcomed the announcement and was “expecting to see a requirement for exchanges to hold a financial services licence.”
“I don’t think our industry should be frightened of high standards,” he added. “It looks like the government is balancing consumer protections and innovation in a sensible and thoughtful way.”
OKX Australia CEO Kate Cooper told Coinpectra that the “real measure” of the draft laws will be their enforcement, ensuring that “responsible, licensed operators aren’t undercut by unregulated players and that Australian consumers are protected.”
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Crypto.com Australia general manager Vakul Talwar said the draft legislation was “long overdue,” and backed the decision to regulate crypto under financial services laws as it “protects consumers without imposing excessive red tape.”
Talwar added the draft laws show “a clear understanding of the sector’s needs,” and that a proposal by ASIC for businesses to hold a market operating licence “would have stifled innovation and driven firms offshore and away from the Australian market.”
Kraken Australia managing director Jonathon Miller said the draft legislation gives “investors and institutions greater certainty,” but added it was “vital that regulation avoids a one-size-fits-all approach that could stifle competition or disadvantage smaller innovators.”
Mulino said the government would now conduct a broad consultation on the draft rules, which will be used to develop them into their final form.
The Treasury has opened the draft legislation for feedback until Oct. 24.
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