Australia Plans Crypto Regulations Targeting Custody, Stablecoin Issuance

Australia’s Treasury published high level plans for the regulation of the digital assets sector. It’s less concerned about the issuance of cryptocurrencies and more focused on platforms that have custody of client assets. That includes crypto exchanges, custody providers, some brokers and stablecoin issuers. Decentralized Finance or DeFi is sidestepped while the situation is clarified around the world. Notably, a significant proportion of DeFi does not involve custody, a key area where the Treasury wants to protect consumers.

It’s not just digital asset providers (DAPs) that will be covered, but also those “providing specified services, such as operating and dealing in DAPs”. Crypto exchanges will be obligated to provide disclosures in cases where assets don’t have an identifiable issuer. For crypto trading venues and others which are small in scale, there will be some exemptions, although platforms will still have to demonstrate some level of compliance. The rules will exclude non financial assets (such as in-game assets as NFTs), developing software and some maintenance roles for digital asset infrastructures.

In many parts of the world there’s the concept of e-money which is one-to-one backed. For example, PayPal is considered e-money in certain jurisdictions and in Europe, stablecoins are classed as e-money tokens. So EU stablecoin issuers have to be licensed like other e-money providers. Australia’s equivalent of e-money is a ‘stored value facility’ (SVF), and it’s taking a similar approach to the EU – stablecoin regulations will largely follow SVF rules.

One of the reasons why the Treasury’s crypto focus is less on issuance may be that Australia considers many cryptocurrencies to be covered by securities laws. Late last year the securities regulator ASIC provided some guidance showing what is considered a financial product or not. The Treasury also plans to explore an expanded regulatory sandbox. And the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC continue to explore wholesale CBDC and asset tokenization.