Government opens digital asset regulation consultation

The government has opened a consultation to increase regulation for digital asset and cryptocurrency platforms by subjecting them to existing Australian financial services laws.

The proposed regulation would require digital asset platforms, which hold over a certain amount in Australian assets ($1,500 for individuals and $5 million in aggregate), to acquire an Australian financial services licence (AFSL).

It would also include those who were providing financial advice on a digital asset, particularly relevant for finfluencers who have come under scrutiny from ASIC in the past.

“Opinions or recommendations intended to influence, or that could reasonably be regarded as intended to influence, a decision about using a digital asset facility would be financial product advice,” it said.

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“Giving advice about using a digital asset facility and investing through it – including acquiring, holding and disposing of digital assets (both financial product and non-financial product) through a digital asset platform – raises the same regulatory issues as giving advice about other financial products.

“This would apply to platform providers themselves and impact the nature rewards and other promotions on their websites.”

These platforms would also be required to meet general licence obligations, including:
Providing services honestly and fairly.
Having a dispute resolution system.
Meeting solvency and cash reserve requirements.
Producing financial records and disclosure statements.

Specific obligations would also apply depending on the nature of the platform and token, as well as additional requirements relating to trading, staking, tokenisation and fundraising. 

The regulatory regime would be fit-for-purpose, with a focus on the providers that hold individuals’ digital assets, rather than the token itself, to prevent any exploitation of regulatory loopholes. 

With approximately one in four Australians owning some crypto, the consultation aims to reduce the increasing risk of crypto exchange collapses.

It also seeks to achieve three goals: drive industry innovation and growth, provide certainty and clarity, and protect consumers and their assets.

“The Albanese government is acting methodically to ensure that consumers are adequately protected and innovation can flourish,” said in a joint statement by Stephen Jones, Minister for Financial Services, and Treasurer Jim Chalmers.

“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.”

According to Jones and Chalmers, the previous government “failed” to implement policies to protect consumers and guide the emerging asset class. 

Speaking at the Australian Financial Review’s Cryptocurrency Summit on Monday, ASIC chairman Joseph Longo said the regulation is about setting minimum standards.

“Crypto must be held accountable to the same high standards we expect of everyone else. Whatever regulatory model the government decides is appropriate, ASIC needs access to the same – or similar – tools as we have for other products and related services,” he commented.

“Lies, theft and investor losses are enemies to be defended against in crypto as in anything else. Questions of governance, risk management, and market abuse still apply.”

Submissions for this consultation will close on 1 December 2023, with further consultation on the draft legislation set to take place in 2024.