The allure of new investment opportunities, the anonymity of exchanges and the absence of third party intervention have attracted large and small scale stakeholders to invest in crypto assets.
Survey data from the Senate Select Committee on Australia as a Technology and Financial Centre shows that 17 per cent of Australians currently own cryptocurrency, with a further 13 per cent planning to buy cryptocurrency in the next 12 months, making Australia one of the world's most significant adopters of cryptocurrencies on a per capita basis.
Australia's own Commonwealth Bank recently announced plans to allow customers to trade cryptocurrencies, such as Bitcoin, on its mobile banking app.
But decision makers and regulators are coming into 2022 with a warning - cryptocurrency is a high-risk game. In January 2022, the Australian Securities and Investments Commission (ASIC) warned self-managed superannuation fund investors to beware of an increasing number of crypto-related scams.
The Australian Competition and Consumer Commission (ACCC) estimates that investment scams have cost Australians over $150 million in 2021 alone.
While much of the allure of cryptocurrency is the lack of regulation, the rise in scams and the potential for use of the currency in money laundering and cyber attacks has led to growing calls for regulation.
Potential investors should be aware that the regulatory landscape for cryptocurrency is likely to shift in 2022. The world of an under-regulated, shadow industry is likely soon to be over. Here's an outline of where we are currently at and where we are likely to go in 2022.
Current regulation
When it comes to regulating cryptocurrencies, the role of Australia's regulators is limited.
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) does not regulate cryptocurrency or digital assets other than requiring digital currency exchange service providers to register with AUSTRAC. This means that AUSTRAC's power to monitor financial transactions and identify money laundering and fraud regarding crypto assets is limited.
ASIC can regulate crypto assets so long as they are considered to be "financial products" within the meaning of Chapter 7 of the Corporations Act 2001. However, a vast number of crypto assets are not considered to be financial products and fall outside ASIC's regulatory power. Where cryptocurrency service providers are unregulated by ASIC, consumers run the risk of not being able to obtain relief or assistance from ASIC in the event of a scam or where a cryptocurrency platform crashes.
The Reserve Bank of Australia also currently has no power to regulate cryptocurrency.
The unique qualities that make cryptocurrencies attractive to many consumers present challenges for regulators interested in protecting retail investors and the stability of Australian financial markets. But many policymakers want to change that.
Senate Report on Australia as a Technology and Financial Centre
In October 2021, the Senate Select Committee on Australia as a Technology and Financial Centre released its final report on the regulation of crypto assets in response to growing concerns about the volatility of cryptocurrency markets. The Committee reviewed the current crypto asset regulations and made a number of key recommendations, including:
- the establishment of a new market licence regime for Digital Currency Exchanges (DCE)
- a government-led token mapping exercise to determine the best way to categorise the various digital assets in Australia
- clarification of anti-money laundering or counter-terrorism financing laws to ensure that they appropriately capture cryptocurrencies
- a new legal structure, the Decentralised Autonomous Organisation (DAO), should be introduced in the Corporations Act to give DAO token holders limited liability.
Regulation in 2022
In response to the Senate Select Committee's final report, the Federal Government announced in December 2021 that by the end of 2022 it will:
- settle the framework to replace the current one-size-fits-all payment licensing arrangements with a functionally based framework
- receive a report from the Board of Taxation on an appropriate framework for the taxation of digital transactions and assets
- undertake a mapping exercise of existing cryptocurrencies and tokens to better inform consumers and others of the risks and benefits that arise
- examine the potential of DAOs and how they can be incorporated into Australia's legal and financial regulatory frameworks.
With Australia poised to lead the charge on cryptocurrency regulation, 2022 is set to be an eventful year for regulators and investors alike. Although there are no guarantees in an election year, the spotlight placed on cryptocurrency regulation by ASIC, the ACCC and hard-done-by customers alike, suggests that momentum for legislative reform will only continue to grow.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
