Australia Unveils Crypto Regulation Plan and Commits to Tackling Debanking

The Albanese-led Australian government has unveiled a new regulatory framework for cryptocurrency, aiming to bring crypto exchanges, custody services, and certain brokerage firms under the country's existing financial services laws. This proposal also includes a commitment to address the growing issue of debanking. The initiative, which is expected to move forward with a draft legislation for public consultation in 2025, comes ahead of the upcoming federal election, which is predicted to be closely contested between Prime Minister Anthony Albanese's Labor Party and the opposition Coalition, led by Peter Dutton.

A New Regulatory Framework for Crypto

In a statement released on March 21, the Australian Treasury confirmed that the new crypto regulation would apply to digital asset platforms involved in activities such as exchange services, custody, and trading. The framework will require these entities to meet similar compliance standards as those imposed on other financial service providers in the country, including safeguarding customer assets, obtaining an Australian Financial Services Licence (AFSL), and adhering to minimum capital requirements.

While the legislation will apply to larger crypto platforms, smaller firms and startups that do not meet certain size thresholds will be exempt. Similarly, firms involved in blockchain development or creating digital assets that do not qualify as financial products will also be excluded from the new regulations. Payment stablecoins will be classified under the Government's Payments Licensing Reforms as a type of stored-value facility. However, certain stablecoins and wrapped tokens will be exempt from the new framework, and platforms trading these assets will not be classified as operating a market solely due to secondary market trading activities.

Tackling Debanking

A key focus of the Albanese government's plan is addressing the issue of debanking, where banks are cutting off services to cryptocurrency businesses. The government has promised to engage with Australia's four largest banks to better understand the extent and nature of this practice. This dialogue aims to ensure that crypto businesses are not unfairly excluded from essential financial services, which has been a growing concern for the industry.

Future Plans: CBDC and Regulatory Sandbox

In addition to the new regulatory framework, the Albanese government has announced plans for a review into the creation of a central bank digital currency (CBDC) and the introduction of an Enhanced Regulatory Sandbox in 2025. The sandbox will allow businesses to test innovative financial products without needing to obtain a full financial services license, providing greater flexibility and opportunities for experimentation within the financial sector.

Public Consultation and Election Uncertainty

While the government has promised to release a draft of the proposed crypto legislation for public consultation, the political landscape in Australia remains uncertain. With the federal election set to take place on or before May 17, the Labor Party and the opposition Coalition are currently neck-and-neck in polls, making the future of the crypto regulation plan potentially subject to change. The Coalition has already indicated its intent to prioritize crypto regulation should it win the upcoming election.

Industry Reactions

Industry leaders have expressed mixed reactions to the proposed regulatory framework, with some applauding the government's efforts to bring clarity to the crypto space. Caroline Bowler, CEO of Australian crypto exchange BTC Markets, welcomed the government's proposal, noting that the reforms would help Australia remain competitive with its global counterparts. However, she emphasized the need for additional clarity on capital adequacy and custody requirements, cautioning that overly burdensome regulations could stifle investment and business growth in the country.

Jonathon Miller, Managing Director of Kraken Australia, also weighed in, stressing the "urgent need for bespoke crypto legislation" to eliminate confusion and uncertainty in the local industry. He argued that a clear regulatory framework, combined with measures to address debanking, would help remove barriers to growth and foster a more conducive environment for innovation in Australia's economy.

Looking Ahead

As the Australian government moves forward with its crypto regulatory plans, the industry will be closely watching the draft legislation and its potential impact on businesses and innovation. The government's commitment to addressing issues like debanking and supporting the development of a regulatory sandbox highlights its intention to create a balanced framework that encourages growth while ensuring consumer protection and financial stability.

With the looming federal election adding an element of uncertainty, the future of Australia's crypto regulation could depend on the political outcome. However, one thing is clear: the Albanese government's approach marks a significant step toward solidifying Australia's position as a key player in the global cryptocurrency landscape.