Introduction
I acknowledge the Gadigal people as traditional custodians of the land we are meeting on.
I pay my respects to their Elders past, present and emerging and extend that respect to all First Nations people attending today.
Thank you to the Australian Financial Review for organising this event.
I’m pleased to be representing the Treasurer this morning and to have the opportunity to outline for you the governments thinking on crypto assets, the regulation needed and how that sits inside the broader project of reform in our financial markets.
There is a consistent approach in all the things we are doing. It’s pragmatic, it’s consumer centric, it’s focussed on ensuring our market regulation is appropriate for a modern and innovative economy. It’s about striking the right balance between encouraging innovation, providing consumer protection and system stability.
Our Government is determined to make Australian consumers safer, better informed, and better empowered to make good decisions while providing certainty for innovators and investors.
We’ve made big strides already.
Our work in cyber, scams and digital identity is all aimed at keeping Australians safe and enabling them to keep faith in the rails of our modern economy.
In credit markets we’ve improved the regulation of consumer leases and payday loans.
We’ve legislated the Financial Accountability Regime and the Compensation Scheme of Last Resort, to hold financial executives accountable for misconduct, and give their customers a chance at justice.
We’ve passed legislation to allow competition in clearing and settlement services.
We’re modernising the way Australians make and receive payments, and how we regulate new participants in the payment ecosystem. We’ve set out the strategic plan in June and we’ve now released draft legislation.
And, we’ve set up a new, world‑leading National Anti‑Scams Centre, bringing regulators, banks, telcos and digital platforms together to take up the fight to scammers directly, after years when Australians were left to fend for themselves.
Now we are looking to Buy Now, Pay Later products, and how we can better regulate them to ensure affordable and responsible lending practices.
We are also looking at unfair trading practices, a problem that’s been left to fester for too long.
We’re putting downward pressure on insurance premiums by addressing the underlying risk in climate and severe weather events.
We’re improving the performance of superannuation funds, and ensuring members are better served by their funds.
And we’re working with industry to modernise our financial advice laws to ensure more Australians have access to better, more affordable financial information and advice.
So we’ve got a lot on.
Consumers benefit from all of this, but so do markets.
Enhancing consumer rights and knowledge improves our markets and strengthens our economy.
Informed and confident consumers drive competition and dynamism. They create efficient markets and a stronger economy.
When we turned to crypto, that’s how we thought about it.
Australians are invested in crypto assets
Crypto assets have enjoyed a surge in popularity, with cryptocurrency enjoying centre stage.
It has emerged from the sidelines of the finance world, where it was a favoured speculative asset of the tech savvy. The Australian Tax Office now estimates around 600,000 taxpayers have invested in a cryptocurrency, though Swyftx tells us that 1 in 4 Australians have crypto.
Despite market volatilities Australians remain heavily invested. Around the world countries are looking to ensure these activities are appropriately regulated. So are we.
Collapses are front and centre on our minds. Around 50,000 Australians were tangled up in the collapse of FTX.
But the price of an underregulated market is broader than that.
Platforms have sold tokens that had overinflated prices, only for the makers of those tokens to cut and run, leaving the investors to face the pain.
We’ve seen celebrities like DJ Khaled and Floyd Mayweather, who to the best of my knowledge are not financial advisers, peddling crypto fundraisers to millions of followers online.
We are also concerned that crypto exchanges are being used to facilitate scams. This year, financial losses via crypto have increased by 33 per cent to $146 million this year. It’s one of the main ways scammers facilitate payments.
Which isn’t to say crypto itself is illegitimate or criminal.
Financial losses via bank transfers remain the main form of scams. And bank transfers are a core part of our financial system.
But bank oversight means there are additional consumer protections for bank transfers that aren’t there for crypto transfers.
Because of these factors – collapses, misconduct, dodgy tokens, and scams – Australians have lost millions, or been forced to wait their turn in a long line of creditors.
All of this points to the need for regulation to protect consumers.
Supporting innovation
There is another good reason for regulatory certainty. It will drive innovation. While most of the public focus has been on cryptocurrency – the government sees extraordinary opportunity for innovation in the underlying technology to create new products and solve real world problems.
It will be in the tokenisation of real‑world assets and information that drives a wave of innovation and productivity in financial and product markets. We want to encourage this.
It can increase competition, productivity and growth in our financial sector. That’s good for the industry, and it’s good for consumers.
But for any of this to come through, consumers need to have trust.
Many consumers will tell you that they feel like they understand crypto well enough to invest in it, they just don’t have confidence in buying something that’s unregulated.
If we’re going to have a world‑class digital assets market, we’ll need fit for purpose regulation that can keep pace with a rapidly evolving ecosystem.
That’s in everyone’s interests.
Our proposal
We have consulted widely and extensively to inform an appropriate model. We considered applying Australian financial product law to all digital assets. We also considered designing a whole new system from the ground up. We decided that neither approach provided the certainty for investors or innovators. It also ran the risk of extending the regulatory reach into types of assets well beyond what was necessary to protect consumers.
So today, the Treasurer and I are releasing a paper that sets out our proposed approach which focuses on digital asset platforms.
An approach that will achieve three things:
- Introduce a framework for industry innovation and growth
- Provide certainty and clarity for industry
- Protect consumers and their assets
We have taken into account the feedback from industry to our token mapping paper, which helped us refine and clarify where regulation must first be focused.
It’s not every token in every scenario that requires regulatory oversight.
Instead, the anchor of our proposed regulation will be the entities that hold Australian’s digital tokens for them – the crypto exchanges and other digital assets platforms.
Because that’s where the highest risk lies.
Digital Asset Platforms will be required to hold an Australian Financial Services Licence.
This approach leverages our existing financial services laws.
They’re time tested and well understood by industry. And they already work to mitigate risks involving businesses holding and using client assets.
A financial services licence comes with a number of obligations. Obligations others in the finance industry are meeting.
Crypto exchanges and other digital asset platforms will need to act honestly, fairly and efficiently. They will need to manage conflicts of interest. They’ll need to have dispute resolution systems. Solvency and cash reserve requirements will apply, and so will financial record keeping requirements. They will need to produce appropriate disclosure documents for the services they are offering. They will have an obligation to monitor and disrupt market misconduct.
We’re also proposing there will be minimum standards specific to digital asset platforms.
They will include standard form platform contracts, minimum standards for holding tokens, standards for custody software, and standards when transacting in tokens.
These obligations will apply to all digital asset platforms, unless the quantum of their holdings fall below a certain threshold of value. That being $1,500 per individual account or $5 million in aggregate holdings.
Because while we want to see the right oversight for platforms, we also want to support smaller, innovative businesses as they explore new approaches and applications.
Our proposed approach will also apply obligations to four specific activities offered by digital asset platforms.
Trading, staking, tokenisation and fundraising.
These four activities will have specific obligations attached to them.
Obligations that will be targeted to address some of the risks that arise from unique business models, and the unique nature of tokens.
Fit for purpose regulation
Our proposed approach is fit‑for‑purpose.
It focuses on those that hold Australian’s digital assets, rather than the token itself.
Through additional obligations, it will lift the standard of service provided to Australians.
It is a major step to mitigate the risk of collapses in future.
And it is technology neutral. It doesn’t pick technology winners.
It keeps open the opportunities for technological innovation to happen in the future.
Where to from here
This is a highly technical and rapidly moving area.
We need your views. Because, of course, those at the frontline of innovation will have particular insights on how this regulation will work for industry.
I invite you all to contribute via Treasury’s consultation, and look forward to returning to industry next year with legislation to enact these much‑needed reforms.