Cryptocurrency: Australian Securities and Investment Commission to enforce financial services licenses

Cryptocurrency exchanges and most digital token issuers will be required to have a financial services licence under a new proposal by the country’s top financial regulator, bringing the industry under greater scrutiny.

In a consultation paper issued by the Australian Securities and Investment Commission (ASIC), the regulator will argue that many digital assets are equivalent to traditional securities like shares or managed investment schemes and therefore subject to the same licensing rules.

The proposal comes as Bitcoin nears the psychologically significant $US100,000 ($A154,000) mark, pushing its total market value beyond silver to be the seventh largest listed asset in the world. Swyftx, a cryptocurrency exchange, estimates that 4.5 million Australians own digital currencies.

As investor interest surges following the election of pro-crypto Donald Trump, ASIC’s paper is designed to add more clarity to the fast-growing sector that could have potentially systemic risks.

‘We want to promote the growth of responsible financial innovation while ensuring consumer protection. A well-regulated financial system benefits everyone in the community as it supports consumer confidence, market integrity and facilitates competition and innovation,” said ASIC Commissioner Alan Kirkland.

The paper comes as the industry players in the cryptocurrency and digital asset space are searching for clearer guidelines on what kind of products would be allowed.

Digital innovation is one of the five pillars of the Government’s drive for greater productivity and Treasurer Jim Chalmers welcomed the policy update.

“Our government takes the crypto industry seriously and we know that blockchain and digital assets present big opportunities for our economy, our financial sector and innovation,” Dr Chalmers said.

“We know millions of Australians are using or investing in digital assets every year and we want to make sure they can do that as safely and securely as they can while also encouraging innovation.”

The rules will apply to firms applying blockchain technology to financial products and real-world tokenized assets, originators of digital assets, as well as brokers, intermediaries and advisors. It would take a similar approach to ASIC’s view on financial service providers, where if an applicant is proposing to deal in traditional securities or securities based on a digital asset platform, the same licensing regime applies.

It would also force offshore or decentralised structures comply with Australian laws if the digital asset is sold or promoted in Australia.

“Australia’s financial services regulatory regime is broad and technology neutral. Many digital asset-related products and services are financial products under the current law,” Mr Kirkland said.

ASIC has released 13 real world examples highlighting which digital assets would fall under the regulator’s scrutiny.

According to ASIC the rules would apply include digital asset exchanges where currencies are traded, schemes where digital assets like stablecoins are issued to raise funds for investment purposes, and where cryptocurrencies tied to the market value of other assets like currencies or commodities are traded. Digital assets used to facilitate payments will likely require a licence.

Cryptocurrencies like ‘meme’-coins that are not linked to any other investment or transaction – would not fall under the regulator’s scrutiny. While the value of the meme coin may go up or down, it’s capital value is not linked to the business activities of the issuer.

ASIC clarifies that digital tokens that are tied to a product or service such as concert tickets or vouchers for services such as pre-paid lawn mowing will not fall under scrutiny, as long as those tokens are not used to raise

A number of prominent Australian firms and identities have made fortunes using cryptocurrencies, including video game developer Immutable, which was valued at $3.2 billion in 2022, propelling its young founders onto the Australian Financial Review’s rich list. Crypto entrepreneur Ed Craven made headlines in 2022 when, aged 27, he paid a record $80m for a Toorak mansion. Six months earlier he had purchased a home in the same suburb for $38m.