Australia’s proposed regulatory framework for digital asset platforms

  • Legal update

    20 October 2023

Australia’s proposed regulatory framework for digital asset platforms Desktop Image Australia’s proposed regulatory framework for digital asset platforms Mobile Image

On 16 October 2023, the Australian Treasury released a proposal paper on regulating digital asset platforms in Australia. This follows earlier consultation on how best to regulate digital assets undertaken by the Australian government in 2022. In proposing the regulatory framework, the Australian government recognises the need for regulation to protect consumers while supporting innovation to keep pace with the growth of the digital asset sector in Australia. 

A link to the consultation paper can be found here. Our colleagues at MinterEllison have released a summary of the proposed framework here. 

Who should read this? Why?

Digital asset businesses, and organisations supporting them, should take note of these proposals, as they may impact the approach New Zealand takes to regulating digital asset providers. 

What does it cover?

The proposed framework would see digital asset platforms being incorporated into the existing Australian financial services regulatory framework through the inclusion of “digital asset facility” as a type of “financial product”. This would mean that those providing financial services in relation to a digital asset facility will need to hold an AFS licence and be required to comply with all the obligations that come with it if they meet the relevant thresholds. The proposed threshold for licensing applies to digital asset platforms holding Australian assets of more than A$1,500 per customer and over A$5 million in aggregate. 

Also proposed is a framework that imposes minimum standards for the activities of trading, staking, asset tokenisation and fundraising. These standards are designed to address certain risks associated with the business models of digital asset platforms and the nature of the digital assets they offer access to.

Our view

Given the immense growth of the digital asset industry in Australia, we agree that a fit-for-purpose regulatory regime is required to ensure that consumers and their assets are protected. 

In our view, New Zealand should also take a more proactive approach to regulation of digital assets while supporting innovation. The regulatory uncertainty in New Zealand can act as a barrier to the development of new products and technological applications. This is embodied in the recently released Final Report by the Financial and Expenditure Select Committee (Committee) on its inquiry into the current and future nature, impact, and risks of cryptocurrencies. Our Partner Jeremy Muir was one of two independent advisers who prepared a report for the Committee that forms the significant second part of the Final Report, including 22 recommendations for government consideration. As stated in the Report, the advisers do not recommend implementing a fully integrated regulatory regime for digital assets in New Zealand given the size of the sector here. Instead, they recommend the government to consider bringing certain class of digital assets which are used for investment purposes as a new category of “financial advice product” (but not, to be clear, a new “financial product”) to bring them into the regulated financial advice and client money–client property services regimes.

What Next?

The consultation is open until 1 December 2023. The Exposure Draft of the legislation is expected to be released in 2024. It will be intriguing to observe the response of the newly elected New Zealand government, especially in light of the recommendations made by the Committee. Keep an eye on this space for further updates. If you have any questions concerning this or other matters related to the digital asset sector, please do not hesitate to contact one of our experts. 

This article was co-authored by William Ma, a Solicitor in our Banking and Financial Services team.