Consultation on crypto legislation looms
The Crypto asset secondary service providers: Licensing and custody requirements Consultation Paper (Consultation Paper) outlines the government's proposed approach to licensing crypto asset secondary service providers (with the slightly odd acronym CASSPrs).
The paper states that:
The Government is keen to harness the economic benefits from the technological innovations arising from the crypto ecosystem for Australia and create a local crypto ecosystem that consumers can trust.
This comment is interesting given Australia already has a vibrant local crypto ecosystem which consumers trust with leading digital currency exchanges trusted to hold significant amounts of customer's crypto-assets. We would respectfully suggest a legislative regime should aim to protect and grow the existing crypto ecosystem and seek to reduce and prevent fraud and illicit use, given the traceability of crypto provides a safer starting point for tracking illicit behaviour.
The Consultation Paper sensibly notes that:
domestic providers may benefit from a more reliable and trustworthy crypto market here in Australia through a licencing system or an Australian stamp of quality
The consultation is focused on ensuring that consumers can buy, sell and store crypto assets with CASSPrs with confidence, highlighting the following objectives:
ensuring that regulation is fit for purpose, technology neutral and risk-focused;
creating a predictable, light tough, consistent and simple legal framework;
avoiding undue restrictions;
recognising the unique nature of crypto-assets; and
harnessing the power of the private sector.
The regime will seek to provide a framework for minimum standards of conduct, including the custody of private keys and sustainability of key persons to be operating secondary service businesses.
The Consultation Paper's proposed obligations on CASSPrs aim at implementing a licensing regime separate to the Australian Financial Services Licence (AFSL). 13 proposed obligations set out in the consultation paper are aimed at ensuring minimum standards of conduct for CASSPrs and focus on consumer protection.
Importantly, the Consultation Paper notes actual and perceived regulatory gaps, including: challenges classifying crypto assets as financial or non-financial products; counterparty risks associated with using crypto as a store of value or investment; perception that similar services are regulated in a similar way; and protecting the community from criminal enterprises and fraud.
The undeniable benefit that blockchain technology offers to the Australian economy as well as its inherent advantages of traceability, transparency and access has led to a growing industry that can no longer be ignored.
Regulation around crypto-assets has been gathering pace internationally, with US President Joe Biden recently ordered governmental agencies to review and report on crypto-assets.
The influence and status of cryptocurrencies, and digital assets in general, will only continue to grow, in Australia the Senate Final Report in to Australia as a Financial and Technology Centre recommendations have started our regulatory journey and this consultation paper is an important step on that journey. Blockchain Australia will be coordinating industry to ensure that sound submissions are made to the government and those submissions will be aligned to give the best chances of a good legislative outcome.