On 20 October 2021, the Senate Select Committee on Australia as a Technology and Financial Centre (the Committee) released its final report. Following the release of the Committee’s third issues paper in May 2021, this final report focuses on:
- the regulation of cryptocurrencies and digital assets,
- issues relating to ‘debanking’ of FinTechs and other companies,
- the policy environment for neobanks in Australia, and
- options to replace the Offshore Banking Unit regime.
The Committee previously released two interim reports in April 2021 and September 2020.
The Committee broadly recommends pushing towards establishing a clear Australian regulatory and licensing framework for digital asset exchanges and providers, while ensuring that the current CGT and AML regimes are fit-for-purpose for digital assets and do not undermine innovation.
An important development for Australia's digital assets sector
The Committee’s final report is an important development for the rapidly growing digital assets sector in Australia. The recommendations are ambitious. While it is unlikely that all of them will be implemented as recommended, they do provide an indication of the direction of future regulation in this area in Australia.
Crypto and digital assets service providers have largely remained unregulated in Australia to date. We have seen a slow expansion of regulation for the industry, such as changes requiring digital currency exchange providers to comply with the Australian AML/CTF regime as well as capturing cryptocurrency trading for the purposes of Capital Gains Tax collection.
Notably, the Committee has recommended that the Australian government establish a financial markets licensing regime for digital currency exchange providers and implement rules around the custody of such digital assets. If implemented, this presents a significant shift in the regulation of digital currency exchange providers. It will transport such providers into the intricate web of obligations that apply to Australian financial market licensees.
The Committee has also recommended the Government undertake an exercise to determine the best way to characterise the various types of digital assets in Australia. Should this mapping exercise result in certain types/classes of digital assets being characterised as a financial product, it has the potential to bring cryptocurrencies, and a wide range of businesses involved in providing services in relation to digital assets, within the broader financial services licensing regime.
The Committee has recommended a comprehensive crypto framework to deliver Australian leadership. We’ll be competitive with Singapore, the UK and the US.”
Committee Chair Senator Andrew Bragg
Senate Committee's 12 recommendations
The Committee makes a total of 12 recommendations summarised as follows:
- Establish a market licensing regime for Digital Currency Exchanges, including capital adequacy, auditing and responsible person tests under the Treasury portfolio.
- Establish a custody or depository regime for digital assets with minimum standards under the Treasury portfolio.
- The Australian Government conduct a token mapping exercise to determine the best way to characterise the various types of digital asset tokens in Australia.
- Establish a new Decentralised Autonomous Organisation company structure.
- Clarify AML/CTF regulations 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'.
- Amend the Capital Gains Tax (CGT) regime so that digital asset transactions only create a CGT event when they genuinely result in a clearly definable capital gain or loss.
- 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.
- Treasury lead a policy review of the viability of a retail Central Bank Digital Currency in Australia.
- Implement the recommendation from the 2019 ACCC inquiry into the supply of foreign currency conversion services in Australia to put in place a scheme to address the due diligence requirements of banks. This should occur by June 2022.
- 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.
- In accordance with the findings of Mr Scott Farrell's recent Payments System Review, the Reserve Bank of Australia should develop common access requirements for the New Payments Platform in order to reduce the reliance of payments businesses on the major banks for the provision of banking services.
- Establish a Global Markets Incentive to replace the Offshore Banking Unit regime by the end of 2022.
Next steps
The final report followed a range of submissions from industry bodies as well as participation in public hearings. Both the Government and the industry will be closely considering the recommendations provided in the report. It is expected that the Government will release a response to this final report within three months, being the end of January 2021.
Please contact us if you have questions or wish to discuss how you may be affected by the recommendations.
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