The Australian Treasury has released a Proposal Paper introducing a regulatory framework to address consumer harms in the cryptocurrency ecosystem whilst supporting innovation and development. This entails regulating exchanges, custodians, and other digital asset service providers in line with the Australian Financial Services (AFS) licensing scheme.
The introduction of licensing requirements is expected to bring a new level of legitimacy to the crypto sector in Australia. By mandating licensing, the government aims to enhance transparency, combat financial crime, and foster a more secure environment for investors and businesses. The Paper also suggests that licensing would be tied to a range of financialised functions, for example, tokenisation and staking rewards.
Digital asset platforms with a certain level of assets would be required to hold an AFS licence to meet the obligations of financial services law. It is interesting that the Treasury is utilising an existing regime as opposed to a bespoke cryptocurrency licence. Additional obligations will apply to certain cryptocurrency activities, such as requiring disclosure documents to be given to retail clients and requiring standard form contracts that meet minimum standards for certain tasks.
The proposed standards for custody of digital assets are set to closely resemble the existing criteria governing traditional custody providers. These standards would encompass essential requirements concerning the organisational setup, workforce proficiency, and the capability and resources necessary to execute fundamental administrative tasks. Notably, the proposal mandates that digital assets must be explicitly held in trust for clients, serving as a vital safeguard for consumers. Moreover, technical specifications will be enforced to ensure the secure storage of cryptocurrencies under custody.
Furthermore, entities offering transactional services must adhere to specified minimum standards, which include ensuring the independence of asset owners in decision-making processes and compliance with laws pertaining to market misconduct, among other pertinent considerations.
Interested parties are encouraged to submit responses to the Paper by 10 December 2023 via crypto@treasury.gov.au.
