The momentum for crypto as a mainstream asset class continues to build and it is becoming increasingly difficult for sceptics to ignore. Australia faces an inflection point and risks being left behind if we do not act quickly to implement our own regulatory frameworks, so that we can see these benefits play out in our own market.
Last month, Federal Parliament had its first sitting week since the election in May, and while crypto reform was not on the opening agenda, the clock is ticking. With a limited number of sitting days before year end, the government is going to need to move quickly and introduce draft legislation, in order to match this global momentum. Further delays will result in firms setting up shop offshore and consumers feeling ever growing angst about the security of their investments.
Building on proven foundations
Our financial services industry has a strong platform to build off, and we can add to it by drawing on the experiences of governments overseas. We need clear licensing requirements and principles-based regulation to enhance market integrity and protect investors. At the same time, it needs to be appropriate for businesses and market operators as to not stifle innovation by driving them offshore into other markets.
The Federal Government’s amended approach of incorporating crypto regulations around the Australian Financial Services License (AFSL) regime is a fair starting point, which can be tailored to reflect the unique nature of our industry. Many market operators, including exchanges and custody providers, have already been through the process of obtaining one. More importantly, it holds significant weight and has an established, longstanding role in protecting consumers and providing guardrails for businesses.
This approach also significantly reduces red tape. ASIC’s original proposal released in November 2024 sought to require firms to hold a market operating licence - something that would take years to obtain and is only held by a handful of firms within Australia.
Striking the right balance
While the Australian market is currently underregulated, stakeholder feedback on ASIC’s proposal has demonstrated that regulation, whether it be from Federal Parliament or ASIC, does not over govern and put a handbrake on the sector. Doing so would discourage firms to enter the Australian market, reducing opportunities for jobs and innovation which ultimately leads to fewer choices for investors.
Learning from international success
Many advanced economies have already been through their initial tranche of regulatory measures and are now looking at further measures to ensure they are well placed for this ongoing crypto momentum. For example, following the US President’s Executive Order issued in January this year on Strengthening American Leadership in Digital Financial Technology, a report was recently issued with clear recommendations on the policy framework to be developed – one that is based on clarity and transparency with defined agency jurisdiction boundaries. Further, the US Government and many of their state governments now hold strategic Bitcoin reserves, to serve as a secure account for strategically managing their digital asset holdings.
Additionally, the US Government has also recently endorsed the GENIUS Act, which seeks to provide a regulatory framework around stablecoins to safeguard consumer investments, through protections like requiring 100% reserve backing with liquid assets like currency. This has already sent their IPO market into a frenzy.
Custody: the overlooked cornerstone
There is no shortage of crypto enthusiasts in the Australian market who are eager to see regulation implemented. But most of the conversations have centred around exchanges, and custody is an often-overlooked area that is at the centrepiece of consumer protection. These same consumers are increasingly incorporating crypto into their investment portfolios, and this growing momentum will further cement crypto as a mainstream asset class.
As a business who has built a custody solution that is backed by an AFSL, we know first hand the benefit that institutional grade custody has on improving consumer sentiment and trust. Federal Parliament can draw from the custody principles embedded within consultation papers put forward by the Financial Conduct Authority (FCA) in the United Kingdom or the MiCA legislation in Europe. These measures closely reflect our existing compliance framework that is focussed on security outcomes and operational resilience.
Creating market clarity
Crypto assets are no longer a fringe asset and including them will offer diversification benefits and exposure to emerging opportunities, helping investors enhance long-term outcomes in a dynamic financial environment. At a time where SMSF owners, self-directed investors and even larger institutional investors are increasingly allocating towards crypto, those with an adviser are still unable to seek proper guidance on incorporating crypto in their portfolio. Regulation and licensing will provide financial advisers with the confidence to assist their clients in navigating the digital assets landscape.
When we piece together a regulatory framework that is underpinned by the AFSL regime, with international successes and learnings woven throughout, we can bring together the needs of consumers and the broader crypto community. This is what will increase crypto adoption in Australia, drive domestic investment from institutional investors and signify to consumers that we are a nation that supports the growth of crypto.
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