The Albanese government is finally getting cracking on crypto regulation

The Albanese government is looking to map out Australia’s cryptocurrency, taking a slower approach to digital asset regulation and reform than the former Morrison government.

In a joint announcement on Monday by federal treasurer Jim Chalmers, Assistant Treasurer Stephen Jones and competition, charities and treasury assistant minister Dr Andrew Leigh, they said “the first step in a reform agenda” for crypto will see Treasury prioritise ‘token mapping’ work for the remainder of this year to help identify how crypto assets and related services should be regulated.

The aim is to identify notable gaps in the regulatory framework, progress work on a licensing framework, review innovative organisational structures, look at custody obligations for third party custodians of crypto assets and provide additional consumer safeguards, the ministers said.

“This hasn’t been done anywhere else in the world, so it will make Australia leaders in this work,” they said

“With the increasingly widespread proliferation of crypto assets- to the extent that crypto advertisements can be seen plastered all over big sporting events – we need to make sure customers engaging with crypto are adequately informed and protected.”

A public consultation paper on token mapping will be released soon.

Chalmers accused the former government of “dabbling” in crypto asset regulation and prematurely jumping “straight to options without first understanding what was being regulated”.

The Labor announcement comes 10 months after a report into digital asset regulation was handed down by a Senate Select Committee that looked into the space. Chaired by Liberal senator Andrew Bragg, it  investigated issues such as regulation and consumer protection, the fintech terror of “debanking”, and the taxation of digital assets.

The report made 12 recommendations that Senator Bragg said will drive opportunities for innovative businesses, protect consumers, and enhance Australia’s competitiveness, while also delivering a clear regulatory framework for the digital assets sector in Australia.

Former treasurer Josh Frydenberg embraced the report last December, announcing plans to modernise the rules around digital wallets and BNPLs, as well as improving oversight and licencing around businesses that buy, sell or hold digital assets, in what he called the “most significant reforms to our payments system in 25 years”

He outlined a timeline that would have seen consultation on establishing of a licencing framework for Digital Currency Exchanges, and on a custody or depository regime for businesses holding crypto assets, completed by now, but that has been put to one side as the government shifts the focus to token mapping.

The new Treasurer and government say they’re now “ready to start consultation” with stakeholders on a framework for industry and regulators, which allows consumers to participate in the market while also better protecting them.

“The aim will be to identify notable gaps in the regulatory framework, progress work on a licensing framework, review innovative organisational structures, look at custody obligations for third party custodians of crypto assets and provide additional consumer safeguards,” Chalmers said.

Recent analysis by Roy Morgan found that more than 1.07 million Australians – 5% of the adult population – now own at least one cryptocurrency, and under 35s make up the majority of those investors (59%) – more than one-in-ten under 35s. More than two-thirds (69%, 742,000) of crypto investors are men.

Get on with it

Responses to the government’s announcement were mixed.

Senator Bragg said the Labor government “is trying to create the impression that it is doing something when it is not”.

“In the Senate report, I recommended regulating crypto through a market licensing system as well as token mapping. No choice is required. Both can be done,” he said.

“Australia is in the midst of a race for consumer protection, capital attraction and innovation. The Albanese government is commissioning another review rather than responding to the Treasury consultation on crypto markets and custody. The Government should get on with the job of producing a draft bill rather than further reviewing. Our competitors are enhancing their regulatory systems while we establish endless reviews.”

Caroline Bowler, CEO of crypto exchange BTC Markets said they were please by the Treasurer’s announcement on token mapping and consumer protections. 

“This move recognises the significance of the digital asset infrastructure for the future of Australia, and we look forward to working alongside the Treasury Department towards creation of regulatory framework,” she said.

“It also mirrors the calls of many of us in the industry who have been asking for proportional, appropriate regulation of our sector. We echo the position of the Treasury consultation paper in March of this year, which recognised that regulation needs to be centred on risk and remain technology neutral.”

Bowler said BTC Markets submitted feedback to both last year’s cross-party Senate Committee and the recent Treasury consultation paper on licensing and custody requirements for the crypto industry. 

“The Treasury consultation paper in March 2022 spoke of regulating according to risk. It recognised that crypto assets are distinct in character compared to traditional financial products,” she said

“The issues of trust and information asymmetry may be mitigated using blockchain technology. As a result, any regulations need to be applied based on risk, and considered technology neutral in design. Token mapping is the foundational work to achieve this risk-based objective.”

Bowler said there are additional benefits to token mapping too.

“It will provide greater clarity to crypto investors; aide companies in developing their own blockchain-based innovations; provide guidance to digital currency exchanges; as well as assist regulators in shaping an appropriate regulatory regime,” she said.

“It will also correctly position Australia in a leadership role globally on this issue.”

Bigger issues

Dr Dimitrios Salampasis, director of fintech at Swinburne University of Technology he hoped the token mapping will guide regulators in deciding how to intervene, but the government needs to get on with the job.

“This is indeed a vital first step so as to ensure a harmonised understanding of the different utilisations and behavioural attributes of existing tokens,” he said.

“However, this token mapping exercise does not really solve the bigger issues around the unregulated world of crypto and the way different quasi-DeFI mechanisms have been functioning with devastating results. Consumer protection is vital and it is very important to consider the various crypto-enabled financial instruments that are constantly being developed.”

Dr Salampasis said a major aspect of the exercise should be consideration of cross-jurisdictional approaches, the retail and wholesale utilisation of various tokens, the integration of digital assets in the metaverse and the ethical and human-level dilemmas that are being raised.

“This token mapping requires a holistic approach going beyond the regulatory and taxation aspects of crypto embracing complex and sensitive aspects incl. identity, personal data, human rights, etc,” he said.

“This token mapping should be conducted in conjunction to work taking place in other jurisdictions and international organisations ensuring consistency, regulatory and taxation interoperability.

“The government should leverage the recommendations of the Senate Select Committee on Australia as a Technology and Financial Centre and avoid further delays.”