The Australian federal government is set to introduce new regulations requiring crypto exchanges to obtain a financial services license, the Australian Financial Review reported on Oct. 15.

Assistant Treasurer Stephen Jones is scheduled to unveil these long-anticipated rules during the Australian Financial Review Crypto Summit.

According to the report, the government will focus on the exchanges — subjecting them to existing financial services laws — rather than regulating individual tokens or cryptocurrencies.

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 compel exchanges to adhere to stringent standards, including providing services transparently and fairly, managing conflicts of interest, disclosing information, submitting financial reports, and meeting solvency and cash reserve requirements.

Additionally, asset custody rules will be enforced to enhance consumer protection within the sector.

According to Treasury data, one in four Australians collectively hold billions of dollars worth of cryptocurrencies through various exchanges operating in the country — making it imperative to bolster consumer protections.

The move follows a series of international hacks and cases of poor risk management, most notably the collapse of U.S.-based crypto exchange FTX, which incurred significant losses for approximately 30,000 Australians.

Additional measures for crypto

Recognizing the unique risks associated with cryptocurrencies, the government intends 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.

ASIC Chairman Joe Longo told the Summit that regulating crypto is about establishing minimum standards akin to traditional finance standards. He stressed the importance of applying consumer protections, including “design and distribution obligations,” to the cryptocurrency sector.

Longo said:

“Crypto must be held accountable to the same high standards we expect of everyone else.”

Public consultation on the government’s plans will continue until Dec. 1, with an exposure draft of the proposed legislation set 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.

NFTs to remain unregulated

Tokens that function as financial products will fall under existing corporate laws. In contrast, non-financial tokens, such as those used in video gaming and non-fungible tokens (NFTs), will remain unregulated.

However, exchanges dealing with non-financial tokens will still require AFSLs. The proposed regulations will also impose certain obligations on activities such as trading, staking, and fundraising for non-financial products.

While these regulations aim to enhance consumer protection, they also strive to strike a balance that promotes innovation.

The Treasury acknowledged the growing role of blockchain technology and tokenization in financial markets and said it aims to create regulations that accommodate the increasing tokenization of assets.

ASIC’s Joe Longo reassured the industry that the regulator is not against distributed ledger technology, tokenization, or central bank digital currencies as long as they prioritize consumer protection.

The post Australia to introduce crypto regulation mandating licenses for crypto exchanges appeared first on CryptoSlate.

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Filed under: Bitcoin - @ October 16, 2023 2:00 am