Australian Senator Submits New Crypto Regulation Bill to Parliament

On March 30, 2023, Senator Andrew Bragg introduced a private bill proposing standards for the cryptocurrency industry in Australia. Known as The Digital Assets (Market Regulation) Bill 2023, the regulation aims to “protect consumers and promote investors” by installing three licensing permits around exchanges, custody, and stablecoin issuance. 

In March 2023, “a cache of documents” were released under freedom of information laws, revealing that the Treasury’s timetable for consulting Australian crypto firms and designing new legislation currently stretches into 2024. Responding to this, Bragg said the legislative process was not moving forward at an appropriate pace, noting, “businesses aren’t just going to wait around.” The proposed bill aims to expedite the process and provide greater regulatory certainty and clarity for Australian crypto companies.

The Digital Assets (Market Regulation) Bill 2023

In addition to empowering the Australian Securities & Investments Commission (ASIC) with the necessary monitoring and investigation powers to enforce the requirements, the bill provides for civil and criminal penalties to deter misconduct. 

Regarding digital asset exchanges, the bill ensures: 

• Minimum capital requirements to provide a buffer in downturn scenarios
• Participant conduct regulation
• Appropriate governance of activity monitoring and procedures
• Segregation of customer funds
• Cybersecurity requirements
• Disclosure obligations for participants and government agencies
• Record-keeping and reporting requirements

Concerning digital asset custody, the bill would also necessitate:

• Requirements for key personnel to be based in Australia
• Minimum capital requirements
• Segregation of customer funds
• Auditing, assurance, and disclosure requirements

Senate Select Committee on Financial Technology and Regulatory Technology

In October 2021, the Senate Select Committee on Financial Technology and Regulatory Technology issued its final report about regulating cryptoassets. The report outlined 12 recommendations, including reviewing the viability of a retail central bank digital currency (CBDC) in Australia and clarifying the country’s anti-money laundering and counter-terrorist financing (AML/CTF) regulations to ensure they do not undermine innovation.

The proposed Digital Assets (Market Regulation) Bill 2023 would implement the first two recommendations for the Australian Government, which focus on:

• The establishment of a market licensing regime for Digital Currency Exchanges that include capital adequacy, auditing, and responsible person tests under the Treasury portfolio.
• The creation of a custody or depository regime for digital assets with minimum standards under the Treasury portfolio.

Token Mapping

In August 2022, following a major consultation period announced by Bragg, a joint statement was released that announced crypto reforms were underway. Following this, the Australian government published a February 2023 consultation paper exploring which elements of the cryptocurrency ecosystem require additional regulation. The paper set out the basis of a “token mapping framework” to help explain how various cryptoassets might fit into existing regulatory frameworks. While the consultation period for this paper has now closed, compliance staff should stay alert for any further developments relating to the token mapping framework. 

According to the Australian government, the framework will be used to define the development of a custody and licensing framework, which the government will propose for public comment by mid-2023. 

Our 2023 State of Financial Crime report, indicates these regulatory reforms are crucial for Australian firms. When asked what crypto-based services they would offer in the future, 70 percent said a trading or exchange service, 54 percent said crypto as a payment method or rail, and 51 percent a custodian or wallet service. 

Key Takeaways

While private bills only have a 2 percent success rate of passage and can take months or years to become effective, firms may choose to consider the possible impact Bragg’s proposal could have on operations. For example, new regulations may require adding a technology layer or developing a strategy to exit a pool of clients who are suddenly deemed to be breaking the law. 

Further, firms that want to submit to this inquiry are encouraged to do so by May 19, 2023. Following this date, the Economics Legislation Committee will report back by August 2, 2023. Compliance staff can “track” the bill through their My Parliament account to stay up-to-date with its proceedings.