New Bill to introduce regulations for digital assets activities

By John Bassilios 

Senator Andrew Bragg has released the Digital Assets (Market Regulation) Bill 2022 for consultation. The Bill seeks to protect consumers and promote investment in Australia through digital asset regulation. Consultation is open until 31 October 2022.

The Bill

Senator Bragg spoke at the Australian Crypto Convention on the weekend, highlighting the importance of digital asset regulation and announcing his intention to introduce the Bill into Parliament.

The Bill introduces licences for digital asset exchanges, digital asset custody services and stablecoin issuers. The rationale for the licences is to provide consumers with confidence that risk is managed similarly to other financial services, as well as providing regulatory certainty to promote investment and growth in Australia’s digital asset ecosystem.

The Bill also establishes disclosure requirements for facilitators of the e-Yuan in Australia. While cross-border payments using e-Yuan are not currently available in Australia, Senator Bragg considers it important to analyse the development of e-Yuan to pre-empt the risks of currency substitution and privacy breaches.

Senator Bragg was the Chair of a Senate Committee that released its final report on Australia as a Technology and Financial Centre in October 2021. The final report recommended that the Government establish a market licensing regime for digital currency exchanges as well as a custody or depository regime for digital assets. The Government consulted on approaches to licensing digital currency exchanges and custody requirements, with the Treasury releasing a consultation paper in March 2022 proposing a licensing framework for such activities (Consultation Paper).

Licensing for digital assets activities

Under the Bill, a licence is required to carry out the following activities in Australia:

• operate a digital asset exchange;
• provide a digital asset custody service; or
• issue stablecoins.

Licensees will be subject to the conditions of the licence and requirements specific to the digital asset activity. The proposed requirements for digital asset exchange and custody services set out in the Consultation Paper are similar to obligations of financial services licensees.

Although the minimum proposed requirements for digital asset exchange and custody services set out in the Bill are not as comprehensive as those set out in the Consultation Paper, the Bill enables ASIC to introduce new rules and obligations for licensees by way of legislative instrument.

The licensing requirements for the issue of stablecoins have been drafted with the Terra collapse in mind. It therefore imposes a requirement that the full amount of the face value of issued stablecoins must be held in reserve in an Australian bank account. There are also regular reporting requirements, such as annual audited financial reports, quarterly reports to the Australian Prudential and Regulatory Authority (APRA) and monthly statements to be made publicly available.

To avoid unnecessary regulatory burdens, the Bill provides an exemption from the requirement to hold a licence, if persons carrying out the digital asset activity already hold a recognised foreign licence covering the activity.

Disclosure requirements for e-Yuan

For the protection of national security and in the interests of transparency, the Bill imposes a reporting requirement on banks facilitating the e-Yuan. A designated bank would be required to report to APRA and the Reserve Bank of Australia (RBA):

• the number of Australian businesses that have accepted payment using digital Yuan facilitated by the designated bank;
• the number of digital wallets for Australian consumers of the designated bank that are open; and
• the total amount of digital Yuan held in digital wallets by Australian consumers of the designated bank.

APRA and the RBA would subsequently be required to prepare a report on the information received for circulation to the responsible Minister, the Parliamentary Joint Committee on corporations and financial services and the Parliamentary Joint Committee on intelligence and security.