Wednesday 18th October 2023
Government forces crypto into the regulatory fold
Concerned by collapses of crypto platforms both here and abroad, the government has put forward a plan to bring digital asset platforms into the Australian Financial Services Licensing system.
Australia’s existing financial services regulatory laws will be leveraged to control digital assets like cryptocurrency and non-fungible tokens, as well as the digital asset platforms that trade them, according to a consultation paper released by the government this week.
The intended framework is being proposed as a backstop to consumer harm, with the government expressing concern over the “significant risk” unregulated digital platforms pose to consumers.
“Collapses of digital asset platforms, both locally and globally, have seen Australians lose their assets or be forced to wait their turn amongst long lines of creditors,” the proposal states. “These reforms seek to reduce the risk of these collapses happening, by lifting the standard of their operations and increasing their oversight.”
In creating a regulatory fence for crypto, however, the government is conscious of the danger in stifling the burgeoning industry; as well as providing “certainty and clarity”, as well as “protecting consumers”, the proposal lists “introducing a framework for industry innovation and growth” among its goals.
Regulations will also be “technologically neutral”, which policymakers hope will encourage and facilitate further types of innovation in the sector.
The plan is for digital asset platforms to be licensed under the existing Australian Financial Services License (AFSL) system, which the government boasts as “time-tested and well-understood”. This will mean platforms need to comply with all the standard general license obligations such as the duty to act efficiently, honestly and fairly, manage conflicts of interests, have a dispute resolution system and provide product disclosure statements.
The government will also embed specific obligations relevant to the digital asset sector such as standards around platform contracts, custody software and transactions. “These obligations are inspired by frameworks used to regulate digital asset platforms in jurisdictions like the EU, UK, Canada, and Singapore,” the proposal notes.
These types of obligations will decrease the risk of digital platform collapses, the government hopes, and protect the investments of digital asset owners. “It will increase scrutiny on exchanges to ensure their customers are well informed, and reduce the risks of consumers being impacted by scams involving crypto,” the proposal states.
Treasurer Jim Chalmers (pictured) made clear in a statement accompanying the proposal that consumer protection was the primary goal.
“Collapses of crypto platforms, both locally and globally, have seen Australians lose their assets or be forced to wait their turn amongst long lines of creditors,” Chalmers stated. “The proposed reforms seek to reduce the risk of these collapses happening by lifting the standard of the operation of platforms and increasing oversight.”
