Australia’s crypto landscape is poised for a drastic overhaul. Whether the ruling Australian Labor Party (ALP) or the opposition Liberal Party prevails in the next election, one thing is clear: comprehensive crypto regulations are on the horizon. DeliciousNFT.com is here to break down what these changes mean for investors and businesses Down Under, served with the no-BS flavor you've come to expect.

Bipartisan Agreement: Regulation is Inevitable

Interestingly, members from both of Australia’s major parties agree on the need to regulate the crypto Wild West before it’s too late. It’s a big deal. This bipartisan commitment represents a significant departure from the mostly laissez-faire, Wild West atmosphere that has defined the sector for decades. The devil is in the details of their proposed approaches and their pace of implementation.

Liberal Party Shadow Treasurer Angus Taylor has thrown down the gauntlet with a big, brash pledge. During his first 100 days in office, he’ll release comprehensive draft regulations for cryptocurrency. This very aggressive timeline indicates an intention to be the first out of the gate with an understandable regulatory framework. The current ALP government is acting on that – through the Treasury. They’ve moved forward with multiple consultations and proposals to regulate digital asset platforms and modernize payment systems.

A few major proposals are already before us, offering a sneak peek at what the future federal rulemaking scene may look like. These are among draft bills on “regulating digital asset platforms” and “payments system modernization” that are expected to be released this quarter. This was echoed by the release of a token mapping consultation paper in February 2023. Its intention was to bring the most salient activities and functions of crypto assets under the umbrella of existing regulatory frameworks. Furthermore, a second consultation paper, released in December 2023, focuses on an enhanced regulatory framework for Australian Payment Service Providers (PSPs).

Key Regulatory Proposals and Their Impact

These proposed regulations are a big step toward adequately covering many key areas. They add licensing requirements for crypto exchanges and AML/CTF (anti-money laundering/counter-terrorism financing) obligations. These changes will be welcome news for crypto businesses already operating down under.

Regulation of Digital Asset Facilities

The administration proposed the regulation of “digital asset facilities.” These multi-function platforms permit operators to custody client assets and from now on will be subject to the same financial services regulations. This step should help protect consumers and bring stability to the fragmented and chaotic crypto market. It too will almost certainly usher in expanding oversight and compliance burdens for these platforms.

Licensing Requirements

The proposed licensing requirements for digital asset exchanges, digital asset custody service providers, and stablecoin issuers could significantly increase operational costs and regulatory burdens for these entities. We call on businesses to proactively invest in robust compliance programs. They are required to adhere to rigorously high capital requirements in order to obtain and maintain these licenses. This may needlessly push the industry toward consolidation, as smaller operators may find it difficult to rise to the occasion.

AML/CTF Act Reforms

Under the proposed reforms to the AML/CTF Act, new regulatory requirements would be placed on crypto businesses. This implies that these firms will need to implement more robust AML/CTF measures and mechanisms. To comply, businesses need to build costly transaction monitoring and reporting systems. They issued a final rule requiring them to strengthen artificially low customer due diligence procedures.

Design and Distribution Obligations (DDO)

Importantly, the DDO, which has been in force since October 2021, will likely shape how cryptoassets are designed and marketed. Issuers and distributors have new duties to ensure crypto products are marketed to suitable investors. They need to make sure that investors are provided with sufficient disclosure about the risks at stake.

Taxation of Digital Assets

The Board of Taxation’s report – Review into the taxation treatment of digital assets and transactions – didn’t cover the landscape as far as I’m concerned. This might fuel further efforts to reform crypto-asset taxation. This could impact the industry's profitability and growth, as businesses and investors grapple with new tax rules and reporting requirements.

A Timeline of Australian Crypto Regulation

Australia’s path to comprehensive crypto regulation has not been swift but it has been consistent, characterized by a series of consultations, draft proposals, and legislative revisions. Here’s a brief overview of the key milestones:

  • 2017: Cryptocurrencies were legalized in Australia.
  • 2018:
      >Crypto legislation incorporated AML and CTF measures, and the Financing Act 2006 was updated to include digital currencies in these two regimes.
    • The ATO began consulting with tax experts to identify and track cryptocurrency transactions and ensure all taxes are being paid.
  • 2021:
    • The Government proposed reverting back to the comparable jurisdiction regime (with some amendments).
    • The Senate Select Committee on Financial Technology and Regulatory Technology issued a report into regulating crypto assets, offering 12 recommendations.
  • 2022:
    • The proposed legislation lapsed with the change of Government.
    • August: The Board of Taxation published a consultation guide on the tax treatment of digital assets and transactions.
  • 2023:
    • February:
      • The government through the treasury began a token mapping exercise, to help explain how various crypto assets could fit into existing regulatory frameworks.
      • Treasury released a token mapping consultation paper.
    • March: The country’s taxation office implemented a data-matching program to monitor crypto transactions to ensure compliance with taxation laws.
    • April 20: The Attorney-General released proposed reforms to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act).
    • August: Consultation on proposals to regulate digital asset intermediaries under the existing financial services licensing framework.
    • October 16: Treasury released a consultation paper for industry comment on proposals to regulate digital asset intermediaries under the existing financial services licensing framework.
    • November 23: ASIC commenced proceedings against Web3 Ventures Pty Ltd (Block Earner) alleging that it provided unlicensed financial services in relation to its crypto asset-based products and that it operated an unregistered managed investment scheme.
    • November 30: The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 was introduced to Parliament.

This timeline shows the growing importance and interest by policymakers toward regulation of the crypto industry within Australia, especially in the past two years. These future regulations will be an outgrowth of this foundation, helping to establish a clearer and more detailed roadmap for this quickly evolving industry.

Australia's Approach Compared to the US and UK

Australia’s approach to crypto regulation is similar to what we’re seeing from other developed economies, most notably the US and the UK. There are some key differences.

Similarities

  • Treating cryptoassets as financial securities: Australia's legislation mirrors the US's approach to cryptoassets, which primarily treats them as financial securities subject to existing regulatory frameworks. The UK also plans to bring cryptoassets under the remit of existing financial regulations, aligning with the US.
  • Regulatory priorities: Australia's regulatory priorities, as outlined by the ruling Australian Labor Party (ALP) and the opposition Liberal Party, are broadly similar to those in the UK, with a focus on encouraging innovation while ensuring safety and security for users and investors.

Differences

  • Timeframe for regulation: The UK aims to finalize its legislation by the end of 2025, while Australia's ALP and Liberal Party have promised to enact crypto regulations developed in consultation with the industry, although no specific timeframe is mentioned. The US has been working on a unified regulatory framework for digital assets, with President Donald Trump signing an executive order in 2022 directing federal agencies to develop such a framework.
  • International cooperation: The UK and US plan to continue engagement on crypto regulation through the UK-US Financial Regulatory Working Group, while Australia has also been engaging with the industry to develop its regulatory approach.
  • Approach to oversight: Europe has taken a different approach to overseeing cryptocurrency than the UK, US, and Australia, with Eurozone finance ministers expressing concern about the potential global effects of the US's deregulatory stance on crypto.

These differences in approach underscore the difficulties of trying to regulate a global industry effectively across borders. Each jurisdiction must tailor to its own unique circumstances and priorities. This diversity has created a patchwork of regulatory structures.

Actionable Insights for Crypto Investors and Businesses

Here are some actionable insights to help you prepare:

  • Stay informed: Keep abreast of the latest regulatory developments and consultations. Engage with industry associations and legal experts to understand the implications of the new rules.
  • Prepare for licensing requirements: If you operate a crypto exchange, custody service, or stablecoin issuer, start preparing for the licensing requirements. This may involve reviewing your compliance programs, strengthening your capital base, and engaging with regulators.
  • Enhance AML/CTF compliance: Implement robust AML/CTF systems and controls to comply with the proposed reforms to the AML/CTF Act. This includes conducting thorough customer due diligence, monitoring transactions for suspicious activity, and reporting suspicious transactions to the relevant authorities.
  • Review your product offerings: Assess whether your crypto products comply with the DDO. Ensure that your products are targeted at appropriate investors and that investors receive adequate information about the risks involved.
  • Seek tax advice: Consult with a tax advisor to understand the potential impact of changes to the taxation of digital assets. This will help you optimize your tax strategy and ensure compliance with tax laws.
  • Innovate and adapt: Embrace innovation and adapt your business model to the new regulatory environment. This may involve developing new products and services that comply with the regulations, or exploring new markets where the regulatory framework is more favorable.

For all these reasons, by following this guide, crypto investors and businesses can better position themselves to thrive in the evolving Australian regulatory environment. The takeaway is to be forward-looking, educated, and flexible.

The Future of Crypto in Australia

The future of crypto in Australia will depend very much on how these new regulations are rolled out and whether they’re effective. Thoughtfully designed regulatory frameworks should inspire innovation and draw investment to the region. An arbitrary or overly complex framework smothers innovation and pushes companies overseas.

The Australian government has an opportunity to create a world-leading crypto ecosystem by striking the right balance between regulation and innovation. We must actively and consistently talk with those in industry. With the right flexible regulatory approach, we can create a level playing field for all players.

Australia is one step advance from adopting new comprehensive crypto regulations. The industry needs to prepare themselves for this new era of compliance and scrutiny. Though this creates a landscape of uncertainty, it opens the door for increased legitimacy, stability, and organic growth. DeliciousNFT.com will be here to keep you informed with all NFT news and developments, with the spicy flavor you like.