License

Australia is aiming to tighten regulations around crypto service providers, with draft legislation that would extend finance sector laws to crypto exchanges.

Assistant Treasurer Daniel Mulino told a crypto conference on Thursday that the legislation is “the cornerstone of our digital asset roadmap,” which the Albanese Government released in March.

“This is a preliminary version of the legislation, and we are seeking stakeholder feedback on its effectiveness and clarity before proceeding further,” he said.

Currently, crypto exchanges that simply facilitate trading assets like Bitcoin (BTC) need only register with the Australian Transaction Reports and Analysis Centre (AUSTRAC), which has 400 crypto exchanges registered on its books, many of which are inactive.

Draft law to make two new financial products

Mulino said the draft legislation would create two new financial products under the Corporations Act, a “digital asset platform” and a “tokenized custody platform.”

“This means digital asset platform and tokenized custody platform service providers will need to hold an Australian Financial Services License,” he said.

The license would register all exchanges with the Australian Securities and Investments Commission. Currently, only exchanges that sell “financial products,” such as derivatives, must register with the corporate regulator.

Daniel Mulino addressing the Global Digital Asset Regulatory Summit virtually on Thursday. Source: Digital Economy Council of Australia

Mulino added that the legislation has “targeted rules for key activities,” such as wrapped tokens, public token infrastructure, and staking.

Crypto platforms will also be subject to “a suite of obligations designed to accommodate the unique characteristics of digital assets,” Mulino said, including standards for holding crypto and settling transactions.

Related: ASIC eases licensing rules for stablecoin distributors in Australia

“Failures of digital asset businesses have highlighted the consumer risks, particularly where operators pull and hold client assets without consistent safeguards,” he added.

“This is about legitimizing the good actors and shutting out the bad. It is about giving businesses certainty and consumers confidence.”

Heavy penalties, but “low risk” platforms exempt

Breaches of the law are set to carry penalties of up to 16.5 million Australian dollars ($10.8 million), three times the benefit obtained or 10% of annual turnover — whichever is greater — according to a Treasury press release.

Platforms dubbed 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) a year, will be exempt from the rules.

The Treasury said the exemption is consistent with the approach to financial products such as non-cash payment facilities, adding the legislation doesn’t look to impose new rules on crypto issuers or those that create or use crypto for non-financial purposes.

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