Australia Unveils New Crypto Regulations Ahead of Election

Australia's government, led by the ruling center-left Labor Party, has unveiled a new regulatory framework for cryptocurrencies, aiming to bring exchanges and related services under existing financial services laws. This move comes ahead of a federal election scheduled for May 17, with current polls indicating a tight race between Prime Minister Anthony Albanese’s Labor Party and the opposing Coalition led by Peter Dutton.

The Treasury Department announced on March 21 that the new regulations will apply to crypto exchanges, custody services, and certain brokerage firms involved in trading or storing cryptocurrencies. These entities will be subject to similar compliance requirements as other financial services, including safeguarding customer assets, obtaining an Australian Financial Services Licence, and meeting minimum capital requirements.

The regulatory framework, which has been in development since August 2022 through a series of industry consultations, aims to extend existing financial services laws to key digital asset platforms. However, small-scale and startup platforms that do not meet specific size thresholds, as well as firms developing blockchain-related software or creating digital assets that are not financial products, will be exempt from these regulations.

Payment stablecoins will be treated as a type of stored-value facility under the Government’s Payments Licensing Reforms. However, some stablecoins and wrapped tokens will be exempt from these regulations. The Treasury clarified that dealing or secondary market trading in these products will not be treated as a dealing activity, and platforms where they are traded will not be considered as operating a market simply because of that trading activity.

In addition to the crypto regulations, Albanese’s government has pledged to address the issue of debanking, where financial institutions close the accounts of crypto-related businesses. The government will work with Australia’s four largest banks to better understand the extent and nature of this practice. Furthermore, there will be a review into a central bank digital currency and the establishment of an Enhanced Regulatory Sandbox in 2025, allowing businesses to test new financial products without needing a license.

The government intends to release a draft of the legislation for public consultation. However, the outcome of the upcoming federal election could influence the implementation of these regulations. The center-right Coalition, led by Peter Dutton, had previously promised to prioritize crypto regulation if they win the election. The latest polls show a close race between the Coalition and Labor, with both parties neck and neck for a two-party preferred vote.

Industry leaders have welcomed the new regulatory framework, with Caroline Bowler, the CEO of local crypto exchange BTC Markets, describing the areas of reform as sensible and competitive with global peers. However, she noted that additional details on capital adequacy and custody requirements are needed to ensure that these requirements are not overly burdensome for businesses. Jonathon Miller, the managing director of Kraken Australia, emphasized the urgent need for bespoke crypto legislation to address the existing confusion and uncertainty in the country’s industry. He believes that establishing a clear regulatory framework and mitigating problems like debanking can remove barriers hampering growth in the Australian economy.