Australia will reform payments industry framework, including crypto exchanges

Authorities are preparing to reform laws around Australia’s payments industry. This will include cryptocurrency exchanges and digital asset custodians as well as payments network providers.

The main focus of the regulatory overhaul is to preserve the government’s sovereignty over the payments industry. Within the industry, much of the local market relies on major foreign providers like Apple and Google. 

While affecting these providers, the reform will also regulate the crypto sector. In particular, the government will inquire about establishing a licensing framework for crypto exchanges and “platforms holding digital assets on behalf of clients”.

Largest reform in over 25 years

The incredibly fast development of various payments networks, which are both built on “legacy” Internet and the innovative blockchain technology, has not given enough time for most Aussie regulations to adapt to the changes.

This year, major economies are taking steps to revamp policies on financial innovations (including cryptocurrencies). This has become one of Australia’s wake up calls to reorganise and rethink laws that can benefit Australians.

According to Reuters, Australia’s approach is in line with the United States, where the regulatory framework in design will allow banks to offer custodial services for customers wishing to own crypto assets. 

The rationale behind the reform

Treasurer Josh Frydenberg reveals in a written speech the rationale behind the reform. Concerning cryptocurrencies, many existing regulatory frameworks have been ambiguous. 

For example, crypto assets can be many things depending on the context. Cryptocurrencies can become a currency for decentralised platforms, a store of value, a commodity, and even property.

“For businesses, these reforms will address the ambiguity that can exist about the regulatory and tax treatment of crypto assets and new payment methods,” Mr Frydenberg writes. “In doing so, it will drive even more consumer interest, facilitate even more new entrants and enable even more innovation to take place.

Clear and coherent regulations will likely add more confidence to retail investors and consumers. Mr Frydenberg cites that the reform will clarify the treatment of new payment methods.

“For consumers, these changes will establish a regulatory framework to underpin their growing use of crypto assets and clarify the treatment of new payment methods. As more Australians utilise these technologies and invest in these digital assets, it is important that a robust regulatory regime underpins their interactions.”

Mr Frydenberg also claimed that the reforms will positively drive more consumer interest in digital assets and promote openness to innovation.

What is in store for cryptocurrency exchanges and custodians?

Regulating the payments space will set off in 2022. In the crypto sector, the government plans to establish a new licensing regime for cryptocurrency exchanges. They will also review taxation frameworks for digital assets.  

Impressively, the government also considers a new and unique company structure policy to accommodate Decentralised Autonomous Organisations (DAOs). 

Another difficult topic to address is how crypto assets owned by businesses should be stored. The government proposes that digital assets should be held onshore under the Australian regulatory regime. 

Notwithstanding, many local crypto exchange operators who have been using licensed offshore custodians are concerned. Caroline Bowler, chief executive of BTCMarkets, said, “The issue is that there are no custody solutions onshore in Australia”.

Local crypto exchange operators have cited concerns that a tragic security breach could occur at onshore custodial services, such as the collapsing MyCryptoWallet, which likely now owes “hundreds of thousands of dollars in crypto assets”.

However, the new regulatory framework has considered this. “Exceptions for cryptocurrency exchanges to custody their assets offshore could be agreed with the regulator as part of the exchange’s licensing conditions,” according to the Treasurer.