Major shake-up of rules on the table for Australian crypto players
The federal government could take a package of sweeping reforms of Australia’s booming cryptocurrency industry to the next election following the release of a new parliamentary report into the sector.
On Wednesday, the Select Committee on Financial Technology and Regulatory Technology – led by Liberal senator Andrew Bragg – tabled its final report into the regulation of cryptocurrencies such as bitcoin and Ethereum in Australia after six months of hearings and submissions on the topic.
Industry participants have long been calling on the government to develop stronger and more comprehensive regulations for the cryptocurrency spaceCredit:AP
The 143-page report includes 12 recommendations focused on bringing crypto and broader fintech regulatory framework in line with the industry’s rapid growth and development. Industry participants have long been calling on the government to develop stronger and more comprehensive regulations for the cryptocurrency space, which has previously been woefully under-regulated and at significant risk of exploitation.
For example, a major Australian cryptocurrency exchange, which might process billions in transactions each year, is currently bound by only the most rudimentary compliance measures: collecting customer data for financial intelligence watchdog AUSTRAC and the general laws of the Corporations Act.
This would change under the proposed reforms, with the committee recommending Treasury establish a new market licensing regime for digital currency exchanges. This would operate similarly to the current regimes which regulate market operators like the ASX, and would include capital adequacy requirements, regular auditing and responsible person tests.
In tandem to this, Treasury would also establish a “bespoke” custody or depository regime for digital assets under the new proposals, aimed at bolstering consumer confidence when it comes to storing assets such as bitcoin.
A “token mapping” exercise would also be carried out under the committee’s new proposals, aimed at appropriately characterising different crypto assets and determining if they are considered financial products or not, a move which would require some exchanges or crypto promoters to register for an Australian Financial Services License (AFSL).
Tax treatment of cryptocurrencies has also been a major sticking point for the industry. Digital assets such as bitcoin and Ethereum are currently considered CGT assets and are therefore eligible for capital gains tax, with the sale of those assets viewed as a taxable, CGT event.
However, this interpretation has caused issues when applied to newer forms of crypto-assets and their mechanisms, most notably decentralised finance (DeFi) products, where assets are often staked, swapped, ‘burned’ or exchanged in ways that are not taxable events, rather just features of a certain protocol or software. Advocates had argued this rigidity in the tax system had deterred many users of these newer technologies.
Under the committee’s recommendations, the taxation system would be amended to provide more flexibility in these circumstances, specifying that digital asset transactions should only create a CGT event when they “genuinely result in a clearly definable capital gain or loss”.
“We want to be an economy which is dynamic, we don’t want to be captured by the old vested interests of yesteryear.“: NSW Liberal senator Andrew Bragg.Credit:James Brickwood
Other major changes recommended by the report include the establishment of a new company structure to allow decentralised autonomous organisations (DAOs) to operate in Australia, a move which would put the country at the forefront of regulatory change in this area.
Bitcoin or other crypto miners would also receive a 10 per cent discount on company tax if they source renewable energy, with the committee not wanting crypto mining to “undermine Australia’s net zero emission obligations”.
Further clarification should be made to the country’s anti-money laundering regulation as to not undermine innovation, the committee has also suggested, and a policy review should be undertaken of the viability of the RBA issuing its form of digital currency, something the central bank has said previously that it is investigating.
Senator Bragg told The Age and The Sydney Morning Herald the reforms, if implemented, would bring Australia in line with other crypto-friendly jurisdictions such as Singapore, the UK and the US.
“What we’ve tried to do is not use old hooks for new coats. This is a detailed report with an agenda for Australian leadership in digital assets,” he said. “We want to be an economy which is dynamic, we don’t want to be captured by the old vested interests of yesteryear.”
The senator is hoping the new regulations could be implemented within 12 months, and suggested it could be a platform the Liberal party takes to next year’s election.
“I hope my party will adopt it as party policy,” he said.
“Time is of the essence, so if we win the election I’d like to see us put this in place within three or four months.”
Caroline Bowler, the chief executive of major cryptocurrency exchange BTCMarkets, said the package of proposed reforms had surpassed her expectations.
“For an industry that is moving at such a rapid pace, these pragmatic recommendations are going to give a massive leg up in putting Australia on the global fintech map,” she said.
“Overall, it is an exciting and positive landmark day for the industry. It is an opportunity to reaffirm Australia as a country that supports innovation; consolidate our regional leadership in financial services, and attract overseas interest and investment.”
Senator Bragg’s committee has also called for a number of changes to prevent businesses and consumers in crypto and other industries from being ‘de-banked’, a common issue in the sector where banks refuse to deal with certain customers they deem to be high-risk.
The primary change would be to institute a new path of recourse for de-banked customers, centred around the newly established Australian Financial Complaints Authority, which would allow customers to appeal the banks’ decisions.
Common access should also be granted to the New Payments Platform, a move which would reduce the reliance of payments systems on the major banks.
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