The Australian Treasury has proposed to regulate crypto exchanges, not tokens

Australia's federal government is unveiling plans to regulate the digital assets sector at the exchange level, and may soon require cryptocurrency exchanges to hold a financial services license issued by the local financial regulator.

In its new “Regulating Digital Asset Platforms” consultation paper released on October 16, the Australian Treasury said the new regulatory framework aims to address consumer disadvantage while supporting innovation in the digital asset sector.

The main theme of the new regulatory framework aims to regulate cryptocurrency exchanges and service providers rather than individual cryptocurrencies or tokens. In addition, the consultation paper explained that instead of creating new crypto-specific rules, it would regulate crypto exchanges under existing financial services laws.

The proposal has seen a mixed response from crypto exchanges operating in Australia.

Adam Percy, general counsel of Australian crypto exchange SwiftX, called the proposal “thoughtful” and agreed that “the main focus should be on ensuring that cryptocurrency users have access to blockchain technology with appropriate security and that there is room for innovation.”

Jonathon Miller, director of Kraken Australia, however, expressed his dismay at recent developments, saying the consultation paper was essentially “shoehorning” crypto into financial services regulation.

“Australia is in an unfortunate situation right now where our regulation has taken too long, so we're shoehorning crypto into existing financial services regulation,” Miller said. “We're behind our global peers in implementing a crypto framework, so I appreciate the need to have something local to give certainty to platforms like ours.”

“I hope we can work collaboratively with the government to ensure we don't destroy the value of future innovations in crypto that may fall outside the traditional ‘financial services' box.

Lim Hennessey, a partner at international law firm Clyde & Co., said that while the Treasury is still “wrestling” with different types of tokens and service providers, it's important to remember that all new ideas have been put on the consultation paper. They are still only suggestions, and not legally binding recommendations.

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“Whatever the Treasury suggests, it's just that – just a suggestion. The Government is not bound to follow the recommendations, and it will be lobbied after the consultation paper is out.”

Hennessey said the consultation paper did not address the more pressing issues facing the crypto industry in Australia, such as the recent killings of bankers.

“Many licensed digital asset exchanges, both domestically and internationally, are struggling to find adequate banking services,” Hennessy said.

Specifically, the Treasury stated that the overall point of the consultation paper was to “seek feedback” on a number of questions and regulations contained therein, and stressed that any feedback should be submitted by December 1, 2023.

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