One giant leap for crypto: Digital asset legislation heads to Parliament

The Australian Government has taken a significant step toward regulating digital asset platforms under the Australian Financial Services Licensing (AFSL) regime, with draft legislation set for its second reading in Parliament. This swift move follows public consultations with industry on exposure draft legislation which were completed on 24 October 2025.

Feedback during the consultation period was broadly supportive, though concerns remain about compliance costs, definitional scope and the potential impact on smaller operators. ASIC has also, in the meantime, updated its INFO 225 guidance and issued a sector-wide 'no-action' position until 30 June 2026. The effect of that guidance is that operators must consider the extent to which they will require additional licences and product authorisations to operate their business in addition to the new digital asset framework laid before Parliament. The new legislative framework is targeted only at custody of non-financial products, asset tokenisation and clarifying the application of existing rules to these two new types of financial product.

What are the updates from the draft?

The legislation, formally titled the Corporations Amendment (Digital Assets Framework) Bill 2025, proposes a licensing framework for businesses operating digital asset platforms and tokenised custody services. These entities will be treated as financial service providers under the Corporations Act 2001, bringing them under the oversight of the Australian Securities and Investments Commission (ASIC).

Changes from our previous breakdown of the legislation are as follows:

Meaning of digital token

The definition covers an electronic record that one or more persons are capable of controlling. Control is still generally taken to mean factual control rather than legal control. According to the draft bill, a person is considered to have control, whether alone or jointly with one or more other persons, if they can:

1. Transfer the electronic record; and

2. Exclude others from transferring the electronic record; and

3. Demonstrate themselves as the person capable of performing those actions.

   
   

The definition of digital object has been dispensed with and collapsed into a single definition of a digital token. The definition includes provision for regulations which may prescribe or exclude certain electronic records.

The definition of ‘possession’ has moved from section 9 to section 86 to demonstrate its specific meaning in relation to digital tokens. Where a person factually controls an electronic record, the person possesses the digital token in question, unless the exception in that provision applies. The exemption now more clearly excludes non custodial arrangements. The general meaning of possession is otherwise preserved in the Corporations Act for things other than digital tokens.

Importantly, the legislation clarifies that in determining whether a person can undertake the above actions, it only matters that a person can do it factually rather than legally, and stipulates that it does not matter if another person can do such a thing.

New financial products

The two new financial products “digital asset platform” and “tokenised custody platform” remain.

1. Digital Asset Platform (DAP)

The definition of a DAP has been amended to cover a wider variety of custody arrangements in relation to digital assets, including situations where the operator acts as a trustee, or bailee, or is obliged to ensure digital assets are handled in accordance with that person’s instructions.

It appears that a person stills becomes a client of a platform when they enter into the facility by accepting its terms on opening account. As noted in our earlier article, this definition is broad enough to cover platforms that solely provide custody of digital tokens, as well as those that enable operators or third parties to act on behalf of clients (e.g. using, transferring, or staking tokens), with the operator holding the underlying assets in a manner analogous to physical custody.

A DAP is still required to hold an AFSL if it surpasses an asset holding threshold of more than $5,000 per customer and facilitates more than $10 million in transactions per year, and the proposed volume test would apply on a rolling 12-month basis.

2. Tokenised Custody Platform (TCP)

A TCP is now defined as a facility (again, rather than a non-transferable facility) where the operator identifies specific real-world assets other than money and creates a unique digital token for each asset. Possession of the token gives the holder the right to redeem or direct delivery of the actual asset it represents, where the operator holds as trustee, bailee, or is otherwise obliged to act on the token holder’s instructions. The operator may also be authorised to manage or take actions involving the asset on the holder’s behalf. Again, a person becomes a client of the platform by accepting its terms and opening an account, regardless of how they acquired the token.

The definition remains broad enough to include platforms that provide simple custody and tokenisation, as well as those enabling operators or third parties to act on behalf of clients (e.g., buying, selling, transferring, or staking with the underlying assets). It is still anticipated that additional licence authorisations may be required to deal in or provide other financial services relating to an underlying financial product, consistent with ASIC’s INFO 225 guidance.

Importantly, there is now a clear statement that a tokenised custody facility cannot be a DAP.

Compliance, Disclosure and Design and Distribution Obligations

A licensee that is authorised to issue a DAP or a TCP must comply with:

• general obligations under financial services laws;

• asset holding standards;

• obligations to implement platform rules;

• transaction and settlement standards;

• breach reporting; and

• design and distribution obligations.

  
  

Licensees are still subject to the requirement to issue a facility guide (DAP/TCP Guide), and these provisions remain substantively unchanged.

AFS licensees providing financial services related to the above will still be exempt from certain other fundraising, disclosure and anti-hawking requirements.

Carve-outs from definition of managed investment scheme

The legislation retains the carve outs for specific DAPs and TCPs as qualifying as a managed investment scheme (MIS).

As a reminder, a DAP will not be classified as a MIS if:

• Clients under the platform have the right to redeem or request delivery of the assets held on the platform;

• The platform operator can only act on instructions from the client regarding acquisition, disposal or use of the assets; and

• The operator cannot materially negotiate or determine the rights attached to the assets held on the platform.

  
  

Similarly, a TCP would not come under this definition of MIS if:

• Clients under the platform have the right to redeem or request delivery of the assets held on the platform;

• The platform operator can only act on instructions from the client regarding acquisition, disposal or use of the assets;

• The operator cannot materially negotiate or determine the rights attached to the assets held on the platform;

• All assets linked to tokens on the platform are of the same asset class; and

• Tokens are only divisible to the extent that the asset can be physically divided and delivered in the same way.

  
  

In that context, while the legislation contemplates the tokenisation of an asset itself will not create an MIS, the fractionalisation of interests in that asset will do. This may pose a considerable restriction on the development of tokenised assets markets for retail investors, given the onerous compliance obligations which apply to retail managed investment schemes.

Regulatory clarity

The legislation retains targeted exemptions for blockchain infrastructure and activities. Specifically, it covers custodial staking arrangements (previously intermediated staking arrangements), public digital token infrastructure, wrapped tokens and the ‘coffee shop’ exemption.

The most significant change is the shift in terminology from ‘client’ to ‘beneficiary’ in the definition of custodial staking arrangement. Under the legislation, a beneficiary means:

• For a DAP: a client under the platform; or

• For a TCP: a person who possesses a digital token created under the platform by its operator.

Custodial staking arrangement

A custodial staking arrangement is proposed to be exempt from being classified as a financial product where:

• The beneficiary (rather than a client) and the operator agree to an arrangement using a DAP;

• The operator is allowed to use the beneficiary’s digital tokens for consensus activities (as opposed to staking generally); and

• Any rewards earned from consensus activities (rather than staking), after fees, are passed on the beneficiary.

  
  

Consensus activities are defined within the scope of ‘public digital infrastructure’, being infrastructure protocols that permit any person to contribute to the integrity, functionality and reliability of the infrastructure by conducting activities involving transmitting, processing and recording electronic records.

Further, the arrangement must benefit the beneficiary in at least one of following ways:

1. The beneficiary can redeem assets earlier than if consensus activities directly;

2. The beneficiary  can participate in consensus activities even if they don’t have enough assets to do so on their own;

3. The beneficiary is protected from or compensated for losses related to issues in the operation of the public digital token infrastructure in relation to the assets;

4. The beneficiary can pay lower transaction fees than if the beneficiary has participated in the consensus activities directly; or

5. In a way prescribed by the regulations.

The inclusion of provision for arrangements which result in lower transaction fees is new.

2. Public digital token infrastructure

The definition of public digital token infrastructure has been clarified and is exempt from classification as a financial product or clearing and settlement facility if it meets the following conditions:

1. It is used for the transmission, processing or recording of electronic records that are digital tokens or in relation to digital tokens;

2. The protocol is open source and operates in a non-discretionary manner;

3. Anyone can contribute to the system’s integrity, functionality and reliability by contributing data without needing permission; and

4. The Protocol operates with decentralised control.

The definition now more clearly specifies the public nature of infrastructure which is open source, permissionless and decentralised.

3. Wrapped tokens

A narrow exemption is provided which permits persons to disregard redemption rights in considering whether something is a financial product in limited circumstances. Given the breadth of ASIC’s approach to applying the concept of a derivative to wrapped tokens, this exemption may have limited application.

The exemption applies where:

1. A wrapped token is created in relation to a related asset (which could be a digital asset or a real world asset under a tokenised custody platform);

2. The token is issued under a tokenised custody platform or held through either decentralised wrapping software or public digital token infrastructure; and

3. The holder of the wrapped token has a right to redeem or direct delivery of the related asset.

There is also an addition for the regulations to prescribe an asset as a wrapped token. The exemption does not apply to financial products where rights or interests attached to the wrapped token are not equivalent to the underlying asset.

Decentralised wrapping software, in relation to a wrapped token, has been defined in this section as software through which the asset associated with the wrapped token is held and the software would be considered a tokenised custody platform if the actions it performs were instead carried out by an operator within the meaning of subsection 761GD(1). Those actions include creating the wrapped token and holding the related asset for, or on behalf of, the person who possesses the wrapped token.

4. ‘Coffee shop’ exemption

The insignificant part of business exemption is retained and is designed to exclude businesses from AFSL requirements when their involvement with DAPs or TCPs is incidental. It applies to entities that, in the ordinary course of a primarily non-financial services business, arrange for clients to use a DAP or TCP or advise them about its existence.

Ministerial powers 

The legislation still provides broad discretionary ministerial powers to deem a facility that is ordinarily a DAP to be instead classified as either a financial market or a clearing and settlement facility.

Transitional commencement and application 

The legislation will commence 12 months after the legislation receives assent, with transitional rules allowing entities that do not have an AFSL or appropriate authorisation under an AFSL a 6-month grace period before compliance is required. For financial-services related provisions, if an AFSL application is submitted during this period, an entity’s obligations will begin either upon ASIC’s determination or after the transition period ends.

Written by Steven Pettigrove, Luke Higgins and Tahlia Kelly