Key Insights:

• Australian Treasury’s new framework, aligning with current financial laws, targets crypto exchanges.
• Mixed industry feedback: Swyftx supports, while Kraken Australia expresses concerns.
• Non-financial tokens may remain unregulated, but related exchanges face AFSL requirements.

The Australian Treasury’s Regulatory Approach

On October 16, the Australian Treasury released a detailed consultation paper titled “Regulating Digital Asset Platforms” to bolster its financial landscape. This document sheds light on the nation’s approach to cryptocurrency exchanges. The primary objective of this framework is twofold. It aims to nurture innovation in the digital asset sector and strongly emphasizes upholding consumer rights.

The framework’s design is strategic. Instead of zeroing in on individual digital assets and tokens, the regulatory focus is on the exchange level. This means service providers, especially crypto exchanges, will be the primary entities under regulatory oversight. This approach is intended to simplify the regulatory process, ensuring that the central transactional hubs adhere to the law.

A notable aspect of this framework is its alignment with the prevailing financial services laws. Rather than devising new, crypto-centric laws, the proposal indicates that existing financial regulations should govern crypto exchanges. This perspective is highlighted by the requirement that crypto exchanges with holdings exceeding A$5 million or more than A$1,500 per client must obtain an Australian Financial Services Licence (AFSL) from the Australian Securities and Investment Commission (ASIC).

Understanding the importance of stakeholder feedback, the consultation paper invites comments and viewpoints. Stakeholders have until December 1, 2023, to submit feedback, ensuring a thorough review process.

Industry Reactions to the Proposal

The crypto industry’s response to this regulatory proposal has been mixed. Adam Percy, the general counsel for Swyftx, perceives the proposal positively. He asserts that any regulatory framework should prioritize ensuring cryptocurrency users can access blockchain technology without hindrance. Additionally, the environment should be conducive to innovation, allowing the sector to progress.

However, Jonathon Miller, the Director of Kraken Australia, holds a different view. He believes the consultation paper leans towards integrating crypto into the current financial services regulations. He suggests Australia’s prolonged regulatory process has led to this approach of fitting crypto into the existing financial framework. Miller’s concerns arise from a desire for the crypto sector’s unique characteristics to be acknowledged and addressed. He advocates for a joint effort with the Australian government to develop a regulatory framework that is both inclusive and forward-thinking.

Liam Hennessy, a Clyde & Co law firm partner, provides further insight. He emphasizes that the consultation paper’s suggestions are just that – suggestions. They aren’t legally binding directives. The government will decide the way forward after gathering feedback and assessing various factors. Hennessy also highlights some areas the proposal might have missed, especially the challenges related to de-banking. He observes that many licensed digital asset exchanges, both domestic and international, need help in establishing reliable banking partnerships.

Stance on Non-Financial Tokens

The proposal’s position on non-financial tokens, such as those used in gaming and the NFT space, is clear. While these tokens might remain outside the regulatory purview, exchanges that handle them must comply with AFSL stipulations. The proposal also underscores the importance of establishing clear standards for trading, staking, and fundraising related to these non-financial entities.