Australia could be a leader in digital assets and global hub for cryptocurrencies according to a landmark new report by a Senate committee investigating the sector’s potential.
The Senate Select Committee on Australia as a Technology and Financial Centre, chaired by Senator Andrew Bragg, is bullish on the possibilites, having investigated issues such as regulation and consumer protection, the controversial practice of “debanking”, the taxation of digital assets and even cryptocurrency with a view to making the energy intensive process more environmentally friendly.
The third and final report, tabled in the Senate on Wednesday evening, makes 12 recommendations that Senator Bragg said will drive opportunities for innovative businesses, protect consumers, and enhance Australia’s competitiveness, while also delivering a clear regulatory framework for the digital assets sector in Australia.
“Australia can be a leader in digital assets. This means Australians can access new choices and lower prices,” he said.
“It means Australians can have more control of their financial destiny rather than being dependent on endless intermediation. The Committee has recommended a comprehensive crypto framework to deliver Australian leadership. We’ll be competitive with Singapore, the UK and the US.
“This will drive investment and jobs into Australia.”
Senator Bragg said that one of the key driving principles of the recommendations is to protect consumers in a currently largely unregulated sector while also driving engagement in a bid to improve options, and lower prices, with Treasury having oversight of the crypto sector.
Among the wilder recommendations is a 10% company tax discount for crypto miners if they use renewable energy. The report also suggests the Capital Gains Tax (CGT) regime be amended so that digital asset transactions only create a CGT event when there’s clearly definable capital gain or loss, rather than on transfers.
It also recommends greater clarity around Anti-Money Laundering and Counter-Terrorism Financing regulations amid concerns that cryptocurrency is being exploited by organised crime to hide illegal transactions.
The committee took submissions from more than 100 organisations and individuals on the issues. They included “debanking” – where a financial institution withdraws its services, often at short notice and without explanation to a customer – with Sydney crypto entrepreneur Michaela Juric, founder of trading platform Bitcoin Babe, telling the committee that she’d been “debanked” by 91 financial institutions. Major Australian fintech have suffered the same fate and it remains a widespread concern in the sector.
The report recommends a clearer process for businesses that have been de-banked to appeal to the Australian Financial Complaints Authority.
“De-banking is debilitating. It destroys the ability of Australia’s small business to disrupt and deliver new ideas,” Senator Bragg said.
“The Committee has delivered a market solution to de-banking through consumer protection laws and the insertion of the Australian Financial Complaints Authority.”
The 12 recommendations are:
Recommendation 1: the Australian Government establish a market licensing regime for Digital Currency Exchanges, including capital adequacy, auditing and responsible person tests under the Treasury portfolio.
Recommendation 2: the Australian Government establish a custody or depository regime for digital assets with minimum standards under the Treasury portfolio.
Recommendation 3: the Australian Government, through Treasury and with input from other relevant regulators and experts, conduct a token mapping exercise to determine the best way to characterise the various types of digital asset tokens in Australia.
Recommendation 4: the Australian Government establish a new Decentralised Autonomous Organisation company structure.
Recommendation 5: Anti-Money Laundering and Counter-Terrorism Financing regulations be clarified to ensure they are fit for purpose, do not undermine innovation and give consideration to the driver of the Financial Action Task Force ‘travel rule’.
Recommendation 6: the Capital Gains Tax (CGT) regime be amended so that digital asset transactions only create a CGT event when they genuinely result in a clearly definable capital gain or loss.
Recommendation 7: the Australian Government amend relevant legislation so that businesses undertaking digital asset ‘mining’ and related activities in Australia receive a company tax discount of 10 % if they source their own renewable energy for these activities.
Recommendation 8: Treasury lead a policy review of the viability of a retail Central Bank Digital Currency in Australia.
Recommendation 9: the Australian Government, through the Council of Financial Regulators, enact the recommendation from the 2019 ACCC inquiry into the supply of foreign currency conversion services in Australia that a scheme to address the due diligence requirements of banks be put in place, and that this occur by June 2022.
Recommendation 10: in order to increase certainty and transparency around de-banking, the Australian Government develop a clear process for businesses that have been de-banked. This should be anchored around the Australian Financial Complaints Authority which services licensed entities.
Recommendation 11: in accordance with the findings of Mr Scott Farrell’s recent Payments system review, common access requirements for the New Payments Platform should be developed by the Reserve Bank of Australia, in order to reduce the reliance of payments businesses on the major banks for the provision of banking services.
Recommendation 12: the Australian Government establish a Global Markets Incentive to replace the Offshore Banking Unit regime by the end of 2022.
Senator Bragg hopeful that the reforms will be implemented as soon as possible in order to compete with countries such as Singapore and the UK for investment.
The landmark report was widely welcomed by the fintech sector, but venture capitalist Mark Carnegie said he had serious concerns about its implementation.
“Senator Andrew Bragg’s Select Committee Report on Australia as a Technology and Financial Centre is a great report with some strong recommendations,” he said
“But, if we get legislation implemented and taxation certainty by the end of FY 2021, I will host a party at Bondi Icebergs for everyone! The speed at which we’re trying to actually implement regulatory change, and the speed with which this technology is changing, are just poles apart.”
Carnegie said that based on the market licensing recommendations, he’ll prepare for a digital currency exchange licence, if ASIC will engage, for his decentralized autonomous organisation (DAO), Crypto Gaming United.
“Crypto Gaming United got driven out of Australia because of ambiguity and is now headquartered in Singapore because of its progressive jurisdiction,” he said.
“If you could make the DAO structure globally competitive, people would flood to Australia. There needs to be more clarity on the tax treatment of DAOs and laws to be changed to allow financial advisers to give advice on cryptocurrency to protect retail investors.”
FinTech Australia CEO said many of the recommendations were put forward by her organisation, especially on debanking.
“Creating an escalation point with regulators is an excellent first step towards managing debanking in the fintech industry. As we have pointed out earlier, hundreds of fintechs have been debanked with no form of recourse. As we have argued in the past, we believe this behavior is anti-competitive,” she said.
“We also welcome further moves from the government to create a licensing regime and regulate the crypto exchanges. This will provide certainty to those within the sector, and allow for its growth within Australia. ”
Swinburne University’s Master of FinTech course director, Dr Dimitrios Salampasis, who made two submissions to the committee that feature in the final report, said that the crypto-led industry had been left in the dark for too long.
“These 12 recommendations aim to create reform towards a comprehensive and innovative regulatory vehicle that will pave the way for positioning Australia as a permissive jurisdiction, gaining competitive advantage by attracting global talent, creating job opportunities and repositioning Australia’s economy as a service-driven entrepreneurial and strategic business model,” he said.
You can download the report here.