Crypto exchanges and investors say the Albanese government’s pledge to regulate the local industry will help them avoid losing billions in collapses like FTX, but remain wary of the corporate watchdog’s hardline approach.
Treasury’s plan to introduce legislation to parliament next year that will cover custody of digital assets and establish a licensing regime for cryptocurrency exchanges was welcomed by an industry reeling from the shock failure of the world’s third-largest crypto exchange last week.
Caroline Bowler, chief executive of BTC Markets, an Australian cryptocurrency exchange, said regulating digital assets in Australia would be a win for the economy, but urged policymakers to consider the unique features of digital assets.
BTC Markets CEO Caroline Bowler welcomes the government’s move to regulate cryptocurrencies. Oscar Colman
“Custodial services, or safeguarding of assets, differs in digital assets versus traditional finance,” Ms Bowler said.
“We would anticipate a regime to reflect those differences and mitigate specific risks.”
Custody is one of the largest issues facing the growing number of crypto investors and businesses in Australia. It refers to how and where money or tokens are stored and who is responsible for keeping them secure.
Alongside custody rules, the industry has been calling for exchange regulation for the past few years, arguing exchanges must segregate client assets, adhere to prudent capital requirements and submit themselves to regular audits.
“It is important that regulation balances the requirements of investor protection without smothering innovation,” Ms Bowler said.
The collapse of FTX was accelerated by a “run” on the exchange during which investors tried to withdraw their holdings at once.
It was soon revealed that FTX did not have those assets, having stealthily transferred $US10 billion ($14.9 billion) to another crypto trading business owned by the founder, Sam Bankman-Fried.
Australia is home to several long-standing cryptocurrency exchanges.
In the absence of clearly defined regulations, many exchanges have modelled themselves on the traditional finance sector where they are required to hold assets on a 1:1 basis, limiting their vulnerability to a “bank run”.
But as a Senate inquiry into digital assets heard last year, without clear requirements, anybody in Australia can set up a cryptocurrency exchange and begin receiving “deposits” after clearing AUSTRAC’s anti-money laundering check.
The inquiry resulted in a landmark report into digital asset regulation after investigating issues such as regulation and consumer protection.
The recommendations were largely accepted by Treasury at the time.
“We are firmly advocating for the government to take action and introduce clear digital asset regulatory frameworks,” Leigh Travers, chief executive officer of Binance Australia said.
“Binance Australia is encouraged by the government’s plans to introduce custodial and exchange legislation to protect Australian users.”
While Treasury’s pledge has been welcomed, many are still wary of the Australian Securities and Investments Commission’s recent hardline approach to crypto businesses trying to operate within the existing rules.
Holon Investments has been forced to close its three AFSL-registered crypto funds after ASIC issued a stop order, arguing the funds had not correctly determined the risk profile of their target market.
Following the stop order, Holon found it was unable to get insurance for its products.
“It is critical that the government and regulators zoom out their view of the industry,” said Steve Vallas, a tech adviser to Skaffold Global and former head of lobby group Blockchain Australia.
“Consumer protection and the clearer demarcation of the regulatory perimeter are not matters the industry is resisting,” he said.
“They are, on the contrary, seeking more opportunities to engage with regulators with a view to addressing the information gaps.”
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