Australia is set to enhance its regulatory framework for cryptocurrency service providers with new draft legislation that aims to extend existing finance sector laws to encompass crypto exchanges. Assistant Treasurer Daniel Mulino announced the initiative at a cryptocurrency conference on Thursday, highlighting that the legislation forms the “cornerstone of our digital asset roadmap,” a strategy unveiled by the Albanese Government in March.
The draft legislation is currently in a preliminary stage, with the government seeking feedback from stakeholders to assess its effectiveness and clarity before moving forward. Presently, crypto exchanges that facilitate trading of assets like Bitcoin (BTC) are required only to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC), which has reported 400 registered crypto exchanges, many of which are inactive.
New Financial Products and Licensing Requirements
Under the proposed law, two new financial products will be introduced within the Corporations Act: a “digital asset platform” and a “tokenized custody platform.” According to Mulino, service providers operating under these categories would need to obtain an Australian Financial Services License (AFSL), thereby registering all exchanges with the Australian Securities and Investments Commission (ASIC). Currently, only exchanges dealing in financial products like derivatives are mandated to register with ASIC.
The legislation also includes targeted rules for specific activities such as wrapped tokens, public token infrastructure, and staking. Crypto platforms would be subject to a “suite of obligations” tailored to the unique characteristics of digital assets, including standards for holding and settling transactions. Mulino emphasized that the failures of digital asset businesses have underscored consumer risks, particularly when operators manage client assets without consistent safeguards.
“This is about legitimizing the good actors and shutting out the bad. It is about giving businesses certainty and consumers confidence,” Mulino stated.
Penalties and Exemptions
Violations of the proposed law could result in severe penalties, with fines reaching up to 16.5 million Australian dollars ($10.8 million), three times the benefit obtained, or 10% of annual turnover, whichever is greater, as outlined in a Treasury press release. However, platforms classified 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) annually, will be exempt from these rules. The Treasury noted that this exemption aligns with the approach to financial products like non-cash payment facilities and does not impose new rules on crypto issuers or those using crypto for non-financial purposes.
Industry Support and Concerns
The draft legislation has garnered support from major crypto exchanges operating in Australia. Swyftx CEO Jason Titman expressed approval, stating, “I don’t think our industry should be frightened of high standards.” He added that the government appears to be balancing consumer protections and innovation sensibly.
OKX Australia CEO Kate Cooper remarked that the true test of the draft laws would be their enforcement, ensuring that “responsible, licensed operators aren’t undercut by unregulated players and that Australian consumers are protected.” Meanwhile, Crypto.com Australia’s general manager Vakul Talwar described the legislation as “long overdue,” supporting the decision to regulate crypto under financial services laws to protect consumers without imposing excessive red tape.
“The draft laws show a clear understanding of the sector’s needs,” Talwar noted, warning that a proposal by ASIC for businesses to hold a market operating license could have stifled innovation and driven firms offshore.
Kraken Australia’s managing director, Jonathon Miller, acknowledged that the draft legislation provides “investors and institutions greater certainty,” but cautioned against a “one-size-fits-all approach” that might hinder competition or disadvantage smaller innovators.
Next Steps and Future Implications
The Australian government is now conducting a broad consultation on the draft rules, which will inform their final development. The Treasury has opened the draft legislation for feedback until October 24. As the consultation process unfolds, the crypto industry and regulators will be closely watching the outcomes, which could set a precedent for crypto regulation globally.
This development comes as countries worldwide grapple with the challenge of regulating the rapidly evolving crypto landscape. Australia’s approach, focusing on licensing and consumer protection, may serve as a model for other nations seeking to balance innovation with regulation.
