11 November 2021
*Check against delivery*
The world is embracing digital assets at speed. Australia is in an arms race to keep up with Singapore, the United Kingdom and the United States.
The Australian Senate has delivered a plan that can put us at the top of the list for crypto.
We achieved world-leading status for Fintech through an industry and government collaboration and I believe cryptocurrency can be next.
We have fantastic homegrown examples, like Afterpay, Canva, SafetyCulture and Airwallex, just to name a few, which are now global successes
But for this innovative sector to permanently flourish, law reform is essential.
In a moment I will step through the Senate’s plan but before I do that, I want to run through some of the enormous developments we have seen since the report was handed down on 20 October.
1. Six days later, on 26 October, ASIC gave the green light to listing framework for crypto-asset linked ETFs;
2. On 29 October, AUSTRACreleased a statement which strongly criticised debanking which was a major theme of the Senate report:
· “The effect of de-banking of legitimate and lawful financial services businesses can increase the risks of money laundering and terrorism financing and negatively impacts Australia’s economy. For this reason, AUSTRAC continues to discourage the indiscriminate and widespread closure of accounts across entire financial services sectors.”
3. On 3 November, The Commonwealth Bank announced it will become Australia’s first bank to offer customers the ability to buy, sell and hold crypto assets, directly through the CommBank app;
4. On 4 November, a week after ASIC approved crypto-asset linked exchange-traded funds, the BetaShares Crypto Innovators (CRYP) smashed trading records. $5.2 million was traded in the first five minutes. $42.5 million was traded on its opening day.
All of these developments have occurred within two and a half weeks of the Senate report being handed down. I’m looking forward to seeing what will happen in the next month and then years ahead.
In the short term, I expect to see a number of ETFs appear on the exchanges, and a legislative framework appear in the medium term.
These changes display the consumer, industry and government appetite for evolution and acceptance of digital assets.
It also shows just how keen the industry was for regulation. I wasn’t expecting this when I was assigned the role of chair of the Senate Select Committee on Australia as a Technology and Financial Centre.
The crypto industry has been largely left to its own devices since its inception. But thankfully the community recognised regulation would bring credibility and validity to a sector that had been portrayed as an illegitimate fringe pursuit for its 12 year lifespan.
It can be incredibly hard to get things on the radar - and on the table - in Canberra. It is called the Canberra Bubble for a reason - it can often be hard to burst or break into. And it has a history of struggling to keep with our fast-paced tech sector.
Which is why I am grateful to those in cryptocurrency for helping me. I needed the support and understanding of the sector in order for it to betaken seriously.
With these big developments in the last few weeks - and a sudden change in the way cryptocurrency is being portrayed in the media - I believe we are already reaping the benefits of that hard work.
All these developments are positive. But what is truly important, is that we nail law reform.
And that reform should be delivered within 12 months if we secure the trust of the Australian people at the 2022 election.
To put it plainly, the recommendations aim to provide a clear and comprehensive framework for digital assets. One that would provide consumer protection and promote investment.
Ultimately, we want Australia to have a permanent competitive advantage. There are three main elements.
- Core recommendations
Recommendation1: The committee recommends that the Australian Government establish a market licensing regime for Digital Currency Exchanges, including capital adequacy, auditing and responsible person tests under the Treasury portfolio.
Recommendation2: The committee recommends that the Australian Government establish a custody or depository regime for digital assets with minimum standards under the Treasury portfolio.
Recommendation3: The committee recommends that the Australian Government, through Treasury and with input from other relevant regulators and experts, conduct a token mapping exercise to determine the best way to characterise the various types of digital asset tokens in Australia.
Recommendation4: The committee recommends that the Australian Government establish anew Decentralised Autonomous Organisation company structure.
Recommendation5: The committee recommends that the Anti-Money Laundering and Counter Terrorism Financing regulations be clarified to ensure they are fit for purpose, do not undermine innovation and give consideration to the driver of the FATF 'travel rule'.
There is a package of core recommendations on crypto: one through five. This is the core of the reform package. It sets down licensing systems for markets and custody. It establishes a new corporate structure and it ensures regulatory guidance will not undermine the innovation we desire.
This is the bedrock of permanence.
2. Taxation settings
Recommendations 6 and 7 would provide competitive and dynamic tax settings for our crypto hub ambitions:
Recommendation6: The committee recommends that the Capital Gains Tax (CGT) regime be amended so that digital asset transactions only create a CGT event when they genuinely result in a clearly definable capital gain or loss.
Recommendation 7: The committee recommends that the Australian Government amend relevant legislation so that businesses undertaking digital asset 'mining' and related activities in Australia receive a company tax discount of 10 per cent if they source their own renewable energy for these activities.
We must have competitive tax settings if we want to be a crypto hub. The Senate wants the government to move on capital gains tax reform and to incentivise digital mining with renewable energy.
Firstly, the CGT rules do not work for crypto which is probably more like currency trading than shares trading. The application of share trading like tax rules means the tax system plays havoc with DeFi products. To apply the principles behind CGT, there should be a demonstrated gain or loss to trigger taxation.
Secondly, we want thereto be more digital mining in Australia but we don’t want to burn up the grid or pollute the planet with fossil fuels. Accordingly we recommend a company tax discount for miners which source their own renewable energy. There will be revenue implications for the government and I am seeking to have costings undertaken to better inform the reform discussion.
Recommendations 9 and 10 deal with the issues which really bother me, debanking.
Recommendation9: The committee recommends that the Australian Government, through the Council of Financial Regulators, enact the recommendation from the 2019 ACCC inquiry into the supply of foreign currency conversion services in Australia that a scheme to address the due diligence requirements of banks be put in place and that this occur by June 2022.
Recommendation10: The committee recommends that 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.
I believe many banks have been dressing up de-banking as a regulatory necessity. In fact it is often anti-competitive behaviour and far more sinister and threatening than it appears on the surface.
Debanking is truly debilitating to hard working Australians who are left without the very necessary means to pay their water or electricity bills - or even receive welfare payments.
It has a personal impact but it also undermines Australia as a crypto hub. How can you be a hub if you can’t get a bank account as a trader, miner, exchange, custodian or investor? You can’t.
The position the banks have historically taken will be hard to sustain with the recent entrance of banks into the crypto world. I will ensure it is not an opportunity for the banks to be hypocrites.
Finally, a word on the process. The first report was hand delivered to the Treasurer. The second to Senator Hume. Now it sits with the executive government.
Given where we sit in the electoral cycle, it will not be possible to legislate the reforms before the election but as I said earlier - it should be within the year.
I am working to secure my party’s support to adopt this agenda for our platform for the next Parliament. I urge you to write to your local MPs to make them aware of your stance on the future of cryptocurrency in our country.