The Australian government is set to introduce new regulations requiring cryptocurrency exchanges operating in the country to obtain an Australian Financial Services License (AFSL).
The upcoming rules, to be unveiled by Assistant Treasurer Stephen Jones at the Australian Financial Review Crypto Summit on October 15, will mandate exchanges holding over A$5 million (US$3.2 million) in aggregate or A$1,500 (US$955) for any individual user to be licensed by the Australian Securities and Investments Commission (ASIC).
According to a report by the Australian Financial Review, the regulations will focus on regulating crypto exchanges rather than individual cryptocurrencies and tokens. Exchanges will need to comply with existing financial services laws and meet standards around providing transparent and fair services, managing conflicts of interest, disclosing information, submitting financial reports, and maintaining solvency and cash reserves.
The move comes as Treasury data shows around 25% of Australians collectively hold billions of dollars worth of crypto through various domestic exchanges. The government aims to bolster protections for these consumers following high-profile exchange hacks and collapses like FTX, which caused significant losses for about 30,000 Australians.
In addition to being licensed, crypto exchanges will face extra obligations tailored to the unique risks of cryptocurrencies. These include requirements around standardizing contract forms, implementing custody software, and adhering to token transaction standards inspired by other jurisdictions like Europe, the UK, Canada and Singapore.
ASIC Chairman Joe Longo stated at the summit that regulating crypto is about holding the sector to the same standards as traditional finance when it comes to consumer protections. This includes applying ‘design and distribution obligations’.
According to Longo, “Crypto must be held accountable to the same high standards we expect of everyone else.”
The regulations will undergo public consultation until December 1, 2022, with draft legislation expected in 2024. Once in force, exchanges will have 12 months to transition to the new framework.
While non-financial tokens like those used for NFTs will remain unregulated, exchanges dealing in these tokens will still need AFSL approval. The rules will also impose some obligations around activities like trading, staking and fundraising for non-financial crypto assets.
According to the Treasury, the regulations aim to balance consumer protection with continuing to encourage innovation in areas like blockchain technology and asset tokenization.
ASIC’s Longo said the regulator is not opposed to concepts like decentralized ledgers, tokenization or central bank digital currencies as long as consumer interests are prioritized.
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