The federal government is aiming to protect consumers buying cryptocurrencies by moving to impose greater regulation on the sector that has existed outside of the current legal framework for financial services.
Crypto assets are largely outside the scope of current consumer protection regimes, but federal treasurer Josh Frydenberg told the Australia-Israel Chamber of Commerce the government is currently looking at better regulating this sector.
The move to regulate crypto or digital currencies forms a part of the government’s response to several inquiries into the impact of the digital environment on financial services and lending regulation.
Frydenberg said the government is aiming to have completed a series of consultations by the middle of next year intended to shape new rules for the currently unregulated sector.
Government consultations that are pencilled in for completion by mid-2022 include consultation on establishing a licensing regime for digital currency or asset exchanges, developing a custody or depositing regime so consumers can have confidence in the entities that keep these assets, and evaluating advice on the issue of debanking from the Council of Financial Regulators.
The digital currency regulation announcement also comes after a recent speech by Joe Longo, chair of the Australian Securities and Investments Commission, in which he said that consumers were generally unprotected by the law as it presently stands if they bought digital currencies as an investment.
“ASIC has already provided some guidance on exchange traded funds linked to crypto-assets – they, at least, are financial products, and traded on a licensed exchange, so there will be some protections there – but for the most part, for now at least, investors are on their own,” Longo told the AFR Super & Wealth Summit in November.
Regulating the world of digital currencies is a part of a broader package of reforms the treasurer unveiled during the speech, which includes bringing digital-payment services such as ‘buy now, pay later’ and digital wallets under a regulatory regime.
The government said the regulatory framework needs to be modernised to better cope with the digital environment in accordance with the findings of multiple reviews on the topic.
“The reviews found new technologies and services are testing our current regulatory definitions, perimeter and powers, and exposing regulatory gaps which could contribute to increased risks of consumer and business harm, possible future systemic instability and impeding private sector investment in innovative products and services,” the government’s paper on transforming Australia’s payments system says.
“Failure to modernise our regulatory framework will mean Australian businesses and consumers are increasingly engaging with unregulated parties and the rules governing our systems could be increasingly determined by foreign governments and large multinational companies.”