Opinion Pieces

Regulation for Digital Assets Is Now a Necessity

Daily Telegraph. 22.10.21

Most Australians will end up owning digital assets in some form in the near future. Already, 1 in 5 own cryptocurrency.

Unsurprisingly, it’s predominantly younger people. According to research from YouGov, more than a third of Australians under 50 own digital assets- and over 40% of millennials. 76% are making profits.

That’s why it’s vital we have the framework ready to go when this booming sector achieves even broader acceptance.

This week a Senate Inquiry hands down Australia's first major review of cryptocurrency.

The Senate report I chaired says there should be two driving principles behind the reform I am recommending.

The first principle is that regulation should protect consumers using cryptocurrency just like it would for a financial product.

The ACCC reports that payments via cryptocurrency are the most common form of payment in investment scams. In the first six months of 2021, there was a 119.6% increase in losses associated with investment scams. Nearly half of these scams were due to cryptocurrency.

Regulating crypto doesn’t mean we should subsume cryptocurrency into the existing complex laws which exist for finance, but we should expect that basic consumer and investor protection rules apply.

The challenge for a legislator is to create a framework that leaves space for innovation while providing investors with certainty and consumers with protection. A “one size fits all” is usually an innovation killer.

A crypto consumer protection framework is currently non-existent. The only rules which exist around crypto markets are very basic and set by the financial crimes regulator AUSTRAC, which does not protect consumers under its mandate.

That’s why we have recommended a new system of licensing cryptocurrency markets, setting up a custody system and a token mapping exercise to be run by the Treasury.

The second principle is that Australia cannot turn its back and pretend that this innovation isn’t happening.

On the contrary, we should be seeking to promote investment into cryptocurrency or “digital assets”.

As always, Australia should be ambitious. We need a framework that is at least as good as the world’s best, which is found in the UK or Singapore.

Already we have seen two Australian exchanges awarded licenses overseas. We don’t want to risk losing any more.

One major issue is the rampant “de-banking” of cryptocurrency businesses, many of which are small businesses. When they lose access to banking services, it puts the viability of their businesses at risk.

One particular cryptocurrency business has been “de-banked” 90 times - this has also led to the individual standing behind the business to suffer personal “de-banking”.

It’s pretty hard doing business without a bank account.

One larger cryptocurrency business applied for an asset management licence with ASIC to launch some managed funds.

Under the legislation, they need a licensed Australian bank to provide the bank account for these managed funds. Without it, they cannot do business.

Like any and every emerging industry, it needs to be environmentally responsible. It must address emissions from crypto mining and perhaps explore tax incentives for carbon offsetting.

I have engaged with market participants to let them know regulation is coming. Investors have been forced to run their operations flying blind. But now they will have a flightpath. Security will bring prosperity.

Naturally, we are opposed to change. And I can appreciate the concerns from the original crypto fans that would prefer the government butts out of this industry.

But recently I spoke at a festival on “non-fungible tokens” and I was pleased to hear many “Finfluencers” call for legislation, because they know that regulation will provide the validity and credibility cryptocurrency desperately needs.

Andrew Bragg is a Liberal Senator for New South Wales

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