Crypto compliance ‘no longer optional’ under Australia’s new draft guidelines

As a researcher with a background in both finance and technology, I find myself constantly navigating the dynamic landscape of digital assets and regulatory frameworks. The recent proposal by the Australian Securities and Investment Commission (ASIC) to enforce costly licensing on crypto exchanges and firms is undeniably a significant step towards clarifying the regulatory environment for digital assets in Australia.

Under new proposed guidelines from Australia’s corporate regulator, crypto exchanges and businesses handling digital assets in Australia can no longer evade expensive licensing requirements.

On December 4th, the Australian Securities and Investment Commission (ASIC) published a discussion paper outlining potential guidelines for cryptocurrencies. This proposal classifies numerous digital assets as financial products, clearly stating that the majority of companies involved in crypto transactions will likely require a license to operate.

Kate Cooper, CEO of Australia and APAC at Zodia Custody (a company backed by Standard Chartered), stated that it’s a sort of alert or reminder to the team at CryptoMoon,” in simpler terms.

In simpler terms, it’s crucial now more than ever for businesses in the industry to prioritize compliance, as many companies – whether domestic or foreign – will need to thoroughly review and assess their practices related to custody and regulatory oversight.

In Australia, businesses offering financial services and dealing in financial products need an Australian Financial Services License (AFSL), while platforms facilitating the trading of financial products may also need an Australian Market License.

As a crypto investor, I’ve recently learned that new regulations will necessitate cryptocurrency exchanges and numerous other crypto-related businesses to obtain either one or both types of licenses. This means that the platforms we use to buy, sell, and store our digital assets might undergo changes in order to comply with these new guidelines.

However, concerns exist that the ASIC’s draft guidance might leave cryptocurrency startups in a precarious position, potentially leading to a mass departure of such companies from the nation.

It’s clear that larger businesses are likely to handle regulatory burdens and legal expenses more easily compared to smaller ones. The latter might face challenges in complying with such requirements. This is according to Liam Hennessy, a partner at Clyde and Co and an adjunct professor at the University of Sydney, as he shared his insights with CryptoMoon.

According to Joni Pirovich, a legal expert in cryptocurrency, the recent updates to the guidelines suggest that launching cryptocurrency initiatives in Australia could be just as costly, if not more so, compared to starting such projects overseas.

If we’re considering timing, it seems Australian inventors planning to launch immediately might choose to do so abroad, as those operating locally could encounter substantial increases in compliance expenses.

The co-founder and CEO of Block Earner, Charlie Karaboga, who faced a lawsuit from ASIC in 2022 for providing an unlicensed crypto-yield product, expressed that the situation was a “remarkable stride towards clarity.” However, he also voiced his apprehensions about his company, which currently only employs 13 people, as per Pitchbook’s records.

Karaboga shared with CryptoMoon his viewpoint that ASIC might be undervaluing the financial conditions necessary for obtaining an AFSL, emphasizing that companies require substantial amounts of money, typically in the millions, to maintain on their balance sheets.

“Asking us to hold that much money basically could kill all the startups like us.”

It’s evident that this regulation will bring considerable impact on certain sectors of the local cryptocurrency market, as Swyftx CEO Jason Titman expressed in a statement to CryptoMoon. “We aren’t aware of any other nations regulating exchanges like stock markets,” he added, implying that Australia is taking a unique approach in this matter.

ASIC provides much-needed crypto clarity

According to the executives, a positive aspect emerges from the situation: the regulator has at last provided long-awaited clarification regarding cryptocurrencies – albeit in a stern manner.

Hennessy stated that this regulatory advice is quite important for the market,” he said. “Clear regulations are always beneficial for the market.

The Australian Securities and Investments Commission (ASIC) is contemplating an extensive broadening of the types of offerings they classify as financial products or services. This expansion would encompass digital assets like stablecoins, services for staking native tokens, exchange tokens, and wrapped tokens.

Conversely, it seems that meme coins, NFTs linked with games, as well as Bitcoin (BTC) and Ether (ETH), might evade categorization.

Cooper from Zodia expressed the opinion that the definition of a financial product in the market might be quite broad, in his view.

ASIC has now invited feedback on the proposed updates until Feb. 28, 2025.

Commissioner Alan Kirkland emphasized that we aim to nurture financially accountable advancements, all while safeguarding consumers. He stated that a regulated financial environment is advantageous for everyone within the community, as it bolsters consumer trust, upholds market honesty, and fosters competition and innovation.

“We encourage all stakeholders to engage with the consultation process,” he added.

A final version of the guidance is expected to come in mid-2025 after considering the feedback.

2024-12-04 09:37

ASIC provides much-needed crypto clarity

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