The government has released a consultation paper that outlines proposed approaches to licensing crypto asset secondary service providers (CASSPrs) and crypto custody requirements.
“The proposals in this paper recognise the growing importance of the crypto asset ecosystem to both the Australian and global economy, the need for regulatory certainty to encourage innovation and competition, and seeks to give consumers greater confidence in their dealings with CASSPrs,” the introduction says.
The paper also seeks early views on how to categorise and classify crypto assets to provide more certainty to crypto asset secondary service providers, consumers, and regulators. Consistent with the government’s response to the Bragg Report, a token mapping process will be completed as a separate piece of work and finalised by the end of year.
The government says it “considers that the most appropriate subject of regulation are the crypto asset secondary service providers”.
The existing regulatory framework is described by Treasury as composed of a patchwork of principles-based obligations drawn from other parts of Australian law – the Corporations Act 2001 (Corporations Act), Anti-Money Laundering and Counter-Terrorism Financing Act 2006, and the Competition and Consumer Act 2010.
The paper presents two foundational principles for the regulation of crypto assets.
“First and foremost, products and services should be regulated according to the risks they could present ….. Secondly, any regulation should be technology neutral.”
The proposal would implement a CASSPr licensing regime which would be separate from the AFS licensing regime.
Most of the entities providing access to crypto assets also provide custodial services. These entities would need to comply with the custodial obligations proposed in the consultation paper, or, if they outsourced custody to a third party, ensure that these entities comply with the custody obligations.
There would only be one licence type for CASSPrs who facilitate the buying and selling of crypto assets (exchanges, dealers, brokers) and custodians but the obligations would be graduated depending on the number and type of services offered by the CASSPrs
An alternative option is regulating CASSPrs under the financial services regime.
Under this option, all crypto assets could be brought into the existing financial services regime by defining crypto assets as financial products under section 764A of the Corporations Act and the financial services regime tailored to achieve the appropriate outcomes for crypto assets.
The second alternative option is self-regulation by the crypto industry, and the least likely.