Australia to introduce crypto regulation mandating licenses for crypto exchanges.

According to the Australian Financial Review, Australia to Regulate Crypto with New Rules for Crypto Exchanges Requiring Financial Services License. Assistant Treasurer Stephen Jones will unveil these long-anticipated rules during the Australian Financial Review Crypto Summit. The focus of the regulations will be on the exchanges themselves rather than individual tokens or cryptocurrencies.

Under the new rules, crypto exchanges holding more than $5 million in aggregate or exceeding $1,500 for any individual user will be mandated to obtain an Australian Financial Services License (AFSL) issued by the Australian Securities and Investments Commission (ASIC). The regulations will enforce stringent standards for exchanges, including transparent and fair service provision, conflict of interest management, disclosure of information, submission of financial reports, and adherence to solvency and cash reserve requirements. The regulations will also enforce asset custody rules to enhance consumer protection in the sector.

The move comes in response to a series of international hacks and cases of poor risk management, including the collapse of US-based crypto exchange FTX, which resulted in significant losses for around 30,000 Australians. One in four Australians collectively holds billions of dollars worth of cryptocurrencies through various exchanges operating in the country.

In addition to the licensing requirement, the government plans to introduce additional obligations for exchanges, such as standardizing contract forms and implementing custody software and token transaction standards inspired by regulations in Europe, Britain, Canada, and Singapore. The goal is to establish minimum standards and applying consumer protections, including “design and distribution obligations,” to the cryptocurrency sector.

Public consultation on the government’s plans will continue until December 1, with an exposure draft of the proposed legislation expected to be released in 2024. Crypto exchanges will have a 12-month transition period to adapt to the new regulatory framework once the rules come into force.

It is worth noting that while financial tokens will fall under existing corporate laws, non-financial tokens, such as those used in gaming and non-fungible tokens (NFTs), will remain unregulated. However, exchanges dealing with non-financial tokens will still require AFSLs, and certain obligations will be imposed on activities such as trading, staking, and fundraising for non-financial products. These regulations aim to enhance consumer protection while promoting innovation and accommodating the increasing tokenization of assets in the financial markets.