Nikolas Sargeant
Crypto exchanges and firms dealing with digital assets in Australia will no longer be able to avoid costly licensing under new proposed guidance from the country's corporate regulator.
On Dec. 4, the Australian Securities and Investment Commission (ASIC) released a consultation paper on a proposed guidance for crypto, lumping many digital assets under the category of a financial product which adds in no uncertain terms that most firms dealing in crypto will need to be licensed.
"It's a bit of a wake-up call," Kate Cooper, the CEO of Australia and Head of APAC at the Standard Chartered-backed crypto custodian Zodia Custody.
"Compliance really is no longer optional for the industry, and a lot of the players, both local and international [...] Are going to have to really look at and take an audit of what they're doing from a custody and compliance management perspective."
In Australia, businesses offering financial services and dealing in financial products need an Australian Financial Services License (AFSL), while platforms facilitating the trading of financial products may also need an Australian Market License.
The new guidance would require crypto exchanges and many other crypto firms to get either one or both of these licenses. But there's a worry that ASIC's draft guidance would hang crypto startups out to dry, and others say this could cause an exodus of crypto firms from the country.
"Obviously, the bigger businesses will be better able to withstand all of that regulation, all of that legal cost, compliance cost that is associated with it. Smaller businesses may struggle," Liam Hennessy, a partner at Clyde and Co and adjunct professor at the University of Sydney.
Joni Pirovich, a crypto lawyer, wrote on LinkedIn that the updated guidance will make launching in Australia "on par or more expensive than launching offshore."
"From a timing perspective, Australian innovators that want to launch now will likely do so offshore. Those that are based here face a significant step up in compliance costs," she wrote.
Block Earner co-founder and CEO Charlie Karaboga, who was sued by ASIC for offering an unlicensed crypto-yield product in 2022, said it was an "amazing direction around clarity" but shared concerns about his business — which has just 13 employees, according to Pitchbook.
"I think ASIC underestimates the requirements needed to be met for an AFSL," Karaboga said, explaining that firms need to hold millions of dollars on their balance sheets. "Asking us to hold that much money basically could kill all the startups like us."
"What's clear is that this guidance will have significant implications for pockets of the local crypto industry," Swyftx CEO Jason Titman said in a statement. "We're not aware of any other countries that regulate exchanges like bourses. Rightly or wrongly, Australia is going it alone."
ASIC Provides Much-Needed Crypto Clarity
The silver lining, according to the executives, is that the regulator has finally released much-needed clarity for crypto — even if it was harsh. "It is a significant piece of regulatory guidance to the market," said Hennessy. "Anything which gives regulatory clarity is a good thing for the market."
ASIC is considering a significant expansion of what it considers a financial product or service, including stablecoins, native token staking services, exchange tokens and wrapped tokens.
On the other hand, memecoins, gaming-linked NFTs, Bitcoin and Ether look like they may be able to escape the classification. "I think it is quite an expansive view that has been taken as to what constitutes a financial product in the market," said Zodia's Cooper.
ASIC has now invited feedback on the proposed updates until Feb. 28, 2025. "We want to promote the growth of responsible financial innovation while ensuring consumer protection," ASIC Commissioner Alan Kirkland said in a statement. "A well-regulated financial system benefits everyone in the community as it supports consumer confidence, market integrity and facilitates competition and innovation."
"We encourage all stakeholders to engage with the consultation process," he added. A final version of the guidance is expected to come in mid-2025 after considering the feedback.
