Australia proposes new digital asset laws

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Australia’s securities watchdog has proposed a new law that vastly expands the digital asset activities that fall under its purview and whose providers must acquire new financial service licenses.

The Australian Securities and Investments Commission (ASIC) published a consultation paper that proposes updates to its digital asset oversight. In particular, it focuses on services in which digital assets are packaged as financial products. This ranges from stablecoins and tokenized assets to staking services.

ASIC has been overseeing the sector for years. However, its guidelines have been overly broad and outdated. The Australian government has also failed in formulating digital asset laws, relegating ASIC to regulation by enforcement as it cracked down on specific infringements. 

With the new proposals, ASIC is seeking to plug the gaps. The 28-page paper provides 13 distinct examples of digital asset products whose offerings will change under the new guidelines. They include exchange tokens, in-game non-fungible tokens (NFTs), yield-bearing stablecoin, membership NFTs, gold asset referenced tokens, tokenized securities and native token staking services.

ASIC acknowledges that some digital asset products fall under more than one financial product. A debenture, for instance, could also qualify as a non-cash payment facility. 

Additionally, “even where a digital asset, when sold by itself, may not be a financial product, when it is bundled together with one or more other products or services, the overall arrangement may amount to a financial product.”

The regulator will offer a grace period for VASPs who are applying for a new Australian Financial Services License (AFSL). However, the application must be done no later than six months after the new guidelines were proposed. This grace period won’t apply to digital asset lending businesses; ASIC insists they have enough regulatory certainty following its enforcement actions against some players.

“This is a significant step-up in the level of regulatory guidance we are giving, and the protections available to consumers,” ASIC Commissioner Alan Kirkland told one local outlet. 

Kirkland added that the digital asset sector has been asking for clarification on these for years. He described the proposals as “a reflection of the current law, as ASIC interprets it, considering the legal cases and way products have evolved.”

The Australian government has also backed the proposals. Treasurer Jim Chalmers says the update will allow the country to strike a balance in regulating the sector and “building a dynamic and competitive economy.”

“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,” Chalmers added.

Industry divided on ASIC’s proposals

ASIC’s proposals are plugging the gap following the continued delay by the ruling Labor Party in formulating a framework for the sector. In 2022, following the collapse of the FTX exchange, Chalmers promised to implement new laws for the sector in a few months. Two years later, little has changed, and Aussie ‘crypto’ investors are still uncertain over whether the law protects them. 

The fintech sector is divided on the new ASIC proposals. Some have welcomed them, saying they will offer greater protection to investors and encourage innovation. 

“It is a big improvement on what ASIC provided back in 2017… Digital assets are a lot more than cryptocurrencies. If you are doing things with other people’s money, you will need an AFSL,” opined Professor Ross Buckley, a fintech expert at the University of New South Wales.

Others say that the new regulatory burden will be onerous for the smaller startups and disproportionately favor the bigger firms. 

Fred Schebesta, whose company, Finder, fought ASIC in court for months over whether it had offered digital asset financial products and won, is also critical of the watchdog’s approach.

“It’s like you’ve got the Wright brothers trying to fly a plane, and they’re getting sued for not having a pilot’s license. And that’s a major issue.”

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