We need crypto regulation now, not in the future

Labor has been in office for almost four months. I have often referred to it as a government for vested interests.

The consequence of being a government for vested interests is that key issues unattached to these interests are not addressed.

The failure to regulate cryptocurrency is a major example of Labor’s corrupted priorities.

If cryptocurrency was linked to a union, a big super fund or was part of a class action law firm, it would be a top order issue for Labor.

In the absence of action, I have released a draft bill to regulate crypto for two key reasons.

Firstly, Australia is in a race to regulate crypto because we want to protect consumers but also drive investment.

As it stands, if someone invests in cryptocurrency, it is virtually unregulated. That means if you do your shirt, you do your shirt.

No one thinks it's a good idea to leave this space unregulated. Right now there are no capital requirements, no key personnel tests, no risk management laws and no disclosures.

Even the most ardent libertarians believe that regulatory arbitrage is a bad idea.

At the moment Australians face a gaping hole in that investment in a financial product is protected by regulation whereas a similar looking crypto product is not. The endless advertising of crypto throughout the footy finals make this problem even more pronounced because some of the providers have licences, but there’s a catch.

Their licences are financial services licences, not licences for crypto but they have crypto in their brand or marketing material. Therefore, they are giving an impression that they are offering a regulated product, when they are not.

I have written to ASIC to see what they are doing about this potentially deliberate confusion which arises from the fact that Canberra has not legislated a crypto regulatory regime.

Whatever ASIC says will be interesting but it can only be a secondary matter because ASIC can only enforce the laws which Canberra creates.

That’s why Canberra should be picking up the work we did in the last Parliament through the Senate Committee system and Treasury consultation rather than starting from scratch.

Worryingly, Minister Stephen Jones said on 22 August that: “our Government is ready to start consultation with stakeholders on a framework for industry and regulators…”

I am firmly of the view that the nations with the most sophisticated crypto regulation will attract the most investment. These economies will then benefit the most from new ideas, new choices and lower prices.

We need to see how Australian consumers would be protected with capital requirements, key personnel tests, auditing and disclosure.

Jones and Labor are failing Australian consumers. Future failures will be on their heads.

My bill sets out clear arrangements for crypto market licences, custody systems and proper rules for backing up stablecoins, some of which have recently collapsed in the United States.

Secondly, there is an increasing threat from Central Bank Digital Currencies.

Due to the deteriorating strategic environment in our backyard, movement on CBDCs is more important than it was when the Senate conducted its inquiry into cryptocurrency back in 2021.

In the Senate report last October, the Committee recommended a review into the viability of a retail Central Bank Digital Currency in Australia.

On reflection, given the scale of policy reform recommendations we made, the CBDC recommendation was undercooked. I was wrong to recommend a retail CBDC without deeply considering the privacy/big state implications.

There are numerous privacy issues that could outweigh the benefits and we should not have been as positive as we were.

I note that the RBA has recently self-referred a CBDC inquiry which I will watch with great interest.

I remain unconvinced that a central bank should be running critical economic and security policy like digital payments when their primary role is monetary policy management.

In a recent article in the South China Morning Post, it was reported that Chinese Central Bank data showed that not only have 4.6 million merchant outlets accepted CBDC payments, but more than 261 million digital wallets have been opened, totalling 83 billion yuan or $12.2 billion US. This is across 23 pilot regions in China.

The e-Yuan is in its pilot phase, and cross border payments are being trialled with the UAE, Hong Kong and Thailand. It is not currently available in Australia, but under its two-tiered approach, Chinese state owned banks are primary disseminators of the e-Yuan via digital wallets.

If the e-Yuan were to be introduced into Australia, it is Chinese state owned banks that would likely be the main payment facilitators.

In the Bill, I have therefore deemed it necessary to have provisions requiring that these e-Yuan facilitators - Chinese state owned banks - disclose data to APRA and the RBA regarding its use in Australia. In doing this, we are following a similar approach to the US, but in an expanded capacity.

If the e-Yuan was to become the new currency of the Pacific by supplanting domestic currencies and or the US and Australian dollar, surely we should have a view on how we manage the economic and strategic implications?

The Parliament will now have an opportunity to debate these issues in the absence of action from the government. ‍

Andrew Bragg is a Liberal Senator for New South Wales