Regulation of Australia’s cryptocurrency sector remains a distant possibility, despite a catastrophic 12 months for the industry, after a government-dominated committee preferred to kick the can further down the road rather than embrace a private senator’s bill on the issue from opposition senator Andrew Bragg.
The Senate Economics Legislative Committee, chaired by Labor’s Jess Walsh, said in a majority report that the Bragg bill, first flagged by the NSW Liberal 12 months ago, titled the Digital Assets (Market Regulation) Bill 2023, was “at odds with the measured and industry-accepted approach the government is undertaking”.
Senator Bragg is deputy chair of the committee and coauthored a dissenting report with WA Liberal Senator Dean Smith, which included amendments to his proposed bill, following industry feedback, including excluding NFTs from the definition of ‘regulated digital assets’, as well as stretching out the implementation timeframe.
The committee heard from a range of organisations, including Fintech Australia, BTC Markets, Coinbase, Swyftx and Blockchain Australia during its consultation process.
The majority report notes that: “Timely regulation of the digital asset industry is important. However, as industry stakeholders told the committee, there is a ‘tension between acting quickly in an environment that’s moving globally’ while ensuring that we get domestic digital asset results ‘right’.”
Blockchain Australia suggested implementing regulation this year “would be beneficial” and Chris Berg, co-director of the RMIT Blockchain Innovation Hub, told the committee that there is degree of urgency for the enactment of regulation, noting recent examples of consumer harm in the crypto sector and the known policy options for regulation.
“Some witnesses cautioned that delays to regulation could risk talent and capital going offshore without ‘a bespoke regulatory framework or clarity in how the existing regime applies’,” the majority report said.
The 50-page report makes just two recommendations: that the bill not be passed and that the government “continue to consult with industry on the development of fit-for-purpose digital assets regulation”.
Weighing up the evidence presented to the inquiry, the report said “the committee is of the view that the bill lacks the detail and certainty that investors, consumers and the industry should be provided with. Crucially, the bill fails to interoperate with the established regulatory landscape, creating a genuine concern for regulatory arbitrage and adverse outcomes to the industry.”
No laws for crypto
Australia does not currently have special purpose cryptocurrency laws, instead relying on a patchwork of existing legislation, ranging from the Corporations Act, to consumer credit protection and anti-money laundering laws and the Electronic Transactions Act to address any issues instead.
It’s nearly two years since Bragg coauthored a landmark Senate Select Committee report into digital asset regulation, seeking to address fintech issues such as regulation and consumer protection, the threat of “debanking”, and the taxation of digital assets, setting our a legislative roadmap with 12 recommendations that were embraced by the former Coalition government, which planned to have new laws in place by the end of 2022.
After Labor was elected, incoming financial services minister Stephen Jones said in June last year that crypto exchange regulations were on the way. Treasurer Jim Chalmers and Jones the announced an additional review into the sector a year ago to map out Australia’s cryptocurrency landscape.
That’s when Senator Bragg decided to act, proposing his private senator’s bill. In the meantime, the sector went into a nosedive costing local investors millions of dollars as crypto companies collapsed.
In the same month Labor was elected, the Luna crypto crash due to the supposed ‘stablecoin’ TerraUSD, wiped out around$65 billion in investor value and set off a domino-effect of failures beginning with the Singapore-based crypto hedge fund Three Arrows Capital (3AC), and culminating with FTX and founder Sam Bankman-Fried’s associated crypto trading firm Alameda Research.
Within days, FTX Australia was placed in administration on November 11 last year with an estimated 30,000 customers owed up to $1 million as the local administrators deal with Chapter 11 bankruptcy proceedings in the US and 102 FTX-related companies involved. Local creditors are owed an estimated A$353 million. FTX Australia was ‘ASIC-licenced’.
The collapse of FTX saw Brisbane crypto exchange Digital Surge slide into voluntary administration late last year, owed around $33 million by FTX.
FTX founder Sam Bankman-Fried subsequently arrested in the Bahamas and was extradited to the US to face fraud and conspiracy charges. He’s currently awaiting trial in October. A judge revoked his bail last month over witness tampering concerns. Bankman-Fried’s lawyers are currently seeking to delay the trial.
Meanwhile, in March this year, US regulators launched legal action against crypto giant Binance alleging they broke US money laundering laws.
Senator Bragg wants the Senate to intervene, overrule the committee recommendation and pass his bill, but the Coalition would need to get the crossbench on side to get the numbers. Tasmanian Greens Senator Nick McKim, a committee member, sided with the government.
“If Labor hadn’t abandoned our legislative agenda, these proposed regulations would be the law. By restarting the consultation process, Financial Services Minister, Stephen Jones, has shown that Labor has no plan to regulate crypto,” Bragg said.
“Minister Jones’ choice to go back to the starting block holds two major consequences for the Australian market. First, it has left consumers exposed to the risks of an unregulated market. Second, it has driven investment offshore.
“Labor’s approach will damage existing and new investments designed to bring competition to Australia. The failure to legislate is driving investment offshore.”
BTC Markets CEO Caroline Bowler said Australia needs the regulation of the digital asset industry with increasing urgency.
“This would be to the advantage of Australian investors, businesses and our future economy,” she said.
“International counterparts have the option to obtain licenses in major financial centres around the world. They also know the standards they need to obtain via investment in their businesses and people. This places our overseas peers at an advantage to Australian entities and we are forced to look outside our borders for these opportunities and to invest.
“It is a pressing economic need to be ‘on the ground floor’ with shaping digital assets or be left behind.”