In a significant move to protect consumers and enhance the security of the cryptocurrency market, the Australian federal government plans to introduce new regulations that would require crypto exchanges to obtain a financial services license. Assistant Treasurer Stephen Jones is set to unveil these long-anticipated rules during the Australian Financial Review Crypto Summit. The aim of these regulations is to boost consumer protections by imposing stringent standards on exchanges.
Unlike previous attempts at regulation, the new regulations will focus primarily on crypto exchanges rather than individual tokens or cryptocurrencies. Crypto exchanges that hold more than $5 million in aggregate or exceed $1,500 for any individual user will be mandated to obtain an Australian Financial Services License (AFSL) issued by the Australian Securities and Investments Commission (ASIC). This move is in line with the government’s commitment to overseeing exchanges and ensuring they adhere to existing financial services laws.
Enhancing Consumer Protection and Security
Recognizing the need to bolster consumer protection within the sector, the government plans to enforce asset custody rules. Exchanges will be required to manage conflicts of interest, disclose information, submit financial reports, and meet solvency and cash reserve requirements. These measures aim to address the risks associated with cryptocurrencies and promote a transparent and fair market environment.
The decision to introduce stricter regulations follows a series of international hacks and cases of poor risk management. Notably, the collapse of U.S.-based crypto exchange FTX resulted in significant losses for around 30,000 Australians. The Australian government intends to learn from these incidents and implement robust measures to prevent similar occurrences in the future.
To establish minimum standards in the cryptocurrency sector, the government plans to introduce additional obligations for exchanges. This includes standardizing contract forms and implementing custody software and token transaction standards inspired by regulations in Europe, Britain, Canada, and Singapore. By aligning with international practices, Australia aims to create a global standard for crypto exchanges.
According to ASIC Chairman Joe Longo, the regulation of crypto should be based on the same high standards applied to traditional finance. He highlights the importance of consumer protection and enforcing obligations, such as “design and distribution obligations,” on the cryptocurrency sector. By holding crypto accountable to these standards, the government aims to create a safer and more reliable market for Australian investors.
A Gradual Implementation and Transition Period
Public consultation on the government’s plans will continue until December 1, allowing stakeholders and experts to provide input on the proposed regulations. An exposure draft of the legislation is expected to be released in 2024, giving crypto exchanges a 12-month transition period to adapt to the new regulatory framework once the rules come into force.
While the proposed regulations primarily focus on financial products, they also acknowledge the growing role of tokenization in financial markets. The government aims to create regulations that accommodate the increasing tokenization of assets, promoting innovation while ensuring consumer protection. This move demonstrates Australia’s commitment to staying at the forefront of emerging technologies and their application in the financial sector.
ASIC’s Support for Distributed Ledger Technology
ASIC Chairman Joe Longo reassured the industry that the regulator is not against distributed ledger technology (DLT), tokenization, or central bank digital currencies (CBDCs) as long as they prioritize consumer protection. By striking a balance between innovation and security, Australia aims to foster a thriving and sustainable cryptocurrency market.
The Australian government’s decision to introduce stricter regulations on crypto exchanges reflects its commitment to enhancing consumer protection and security in the cryptocurrency market. By imposing stringent standards on exchanges, the government aims to create a transparent and fair market environment while adapting to the growing role of tokenization and DLT. Through international collaboration and gradual implementation, Australia seeks to establish itself as a leader in the regulation of cryptocurrencies, ensuring the long-term viability of the industry.