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cA report by an Australian Senate committee has recommended against proceeding with a bill that seeks to introduce a "bespoke framework" for the regulation of digital assets.
This month, the Economics Legislation Committee published a report on the Digital Assets (Market Regulation) Bill 2023, which was tabled by opposition Senator Andrew Bragg.
With the ruling Labour party chairing the committee, and therefore outnumbering Bragg’s Liberal party by one seat, the committee made two recommendations following its review of the bill.
The first was that the Australian government continues to “consult with industry” on the development of “fit-for-purpose” digital assets regulation, and the second was that Bragg’s bill “not be passed”.
The committee’s position
In the final section of the report, the committee explained its reasons for rejecting Bragg’s proposals.
It noted that there is “broad support” from both lawmakers and witnesses, including crypto firms and associations, for the development of digital asset regulation in Australia.
However, based on an inquiry that began in March this year, after Bragg introduced his private member’s bill, the committee found it to be lacking in several areas.
First, the committee said the bill lacks the appropriate level of “detail and certainty” that investors, consumers and the wider industry should be provided with.
“Crucially, the bill fails to interoperate with the established regulatory landscape, creating a genuine concern for regulatory arbitrage and adverse outcomes to the industry,” it said.
For example, the committee noted that the bill’s proposed licensing regime would create “complexity” alongside the Australian Financial Services (AFS) licence regime, and would add to the regulatory burden of establishing multiple licence categories.
“Given this significant evidence from inquiry participants, the committee is of the view that a bespoke regulatory framework is not a supported or workable regulatory setting for the industry,” it said.
Secondly, the committee raised concerns that the bill lacks “congruence” with international regimes and best practices.
“To this point,” it said, “many inquiry participants held concerns with the bill’s proposed definitions, and licensing requirements left significant details to delegated legislation which has not been presented.”
Going forward, the committee noted that “further consultation” on digital assets licensing and custody requirements is expected to begin in the coming weeks.
“The committee views such consultations as the most appropriate approach to ensure future digital asset regulation is informed by industry participants and industry best practices,” it said.
Reservations from industry
Several witnesses raised concerns about the application of “technological neutrality” and “same risk, same regulation” in the bill.
Blockchain Australia, for example, argued that products should be “regulated with equivalence” on and of the blockchain.
“Asset-backed tokens should be regulated if they are clearly financial products,” it said, “but if not, they should not be subject to any specific regime other than the normal consumer protection laws that apply.”
Ripple made a similar submission, arguing that digital assets should not “solely be defined relative to a specific technology”, and should instead be classified depending on an asset’s “economic function and purpose”.
In contrast, witnesses such as the Australian Custodial Services Association (ACSA) and the Australian Financial Markets Association (AFMA) took the opposing view.
The ACSA argued that digital assets should be regulated “in a manner comparable to financial products” regardless of their underlying technology, and supported bringing digital assets into the existing AFL regime.
The AFMA agreed, noting that “digital assets present similar or higher risks to other financial products”, and should therefore be “subject to similar regulation”.
Other witnesses argued that a bespoke regulatory framework for digital assets risks regulatory arbitrage, creating an incentive for firms to move to more light-touch jurisdictions.
Bragg’s response
Senator Bragg responded defiantly to the committee’s report, claiming that the new Labor government of Anthony Albanese has squandered the progress on this issue made by the Liberal government of Scott Morrison.
“The benefits of digital asset regulations are twofold: they protect consumers and promote market investment and activity,” he said. “This was why these regulations were placed on the legislative agenda by the former Liberal government in October 2021.
“If Labor hadn’t abandoned our legislative agenda, these proposed regulations would be the law. By restarting the consultation process, financial services minister Stephen Jones has shown that Labor has no plan to regulate crypto.”
Bragg argued that it is a lack of regulation that has “driven investment offshore” and has exposed consumers to a high-risk market without adequate protections.
He added that the bill demonstrates that a bespoke framework is “entirely viable”, and that the Senate should “force the government’s hand” in moving to debate and pass the bill.
“Enacting a law will end policy through grudge enforcement,” he said. “Until there are laws, the Australian Securities and Investments Commission (ASIC) will continue using its tools in the void.
“Labor’s approach will damage existing and new investments designed to bring competition to Australia.”
