How Australia’s New Crypto Regulations Will Reshape the Market
According to the 2019 Index of Economic Freedom, Australia’s financial system ranks fifth in the world, with high scores for government integrity, labor freedom, fiscal health, and trade freedom. It’s no coincidence that the country is also a world leader in the adoption of blockchain technology and cryptocurrencies.
There are hundreds of crypto exchanges, and thousands of crypto investors buy and sell on them every day. This lively interest in cryptocurrency makes Australia ranked 10th globally for BTC volume by currency, at the time of writing. Part of the industry’s growth has been due to government actions to create positive conditions for the industry in Australia. This includes the recognition of Bitcoin and other cryptocurrencies as legal tender and also the removal of an initial law on double taxation for digital currencies.
However, the country hasn’t stopped there. On May 30th, the Australian Securities and Investment Commission (ASIC) published updated guidelines for ICOs and cryptocurrency trading platforms. These new guidelines are aimed at further improving the regulation of the crypto market and helping crypto companies understand compliance requirements. Let’s take a look at the impact of the updated regulations.
These new guidelines are already the third iteration of requirements from ASIC. The first version of crypto rules was delivered in September 2017. Later, in April 2018, ASIC published a second, updated version. The first rules accomplished the basic tasks of defining what cryptocurrency is and how it will be treated by the regulator. The new ones are more directed at protecting the rights of investors by providing clearer requirements for ICOs and crypto trading in general.
Perhaps one of the most significant changes is that authorities have introduced the term “financial product token”. According to the new guidelines, financial products include managed investment schemes, securities, derivatives, and non-cash payment facilities (NCP). Going forward, all crypto-related projects that are looking to deal with financial products on the Australian market are obliged to obtain an AFS license from ASIC.
Cryptocurrency exchange platforms may also need a Clearing and Settlement Facility License, which was introduced by ASIC to maintain the stability of the financial system and to protect traders and investors. Cryptocurrency miners and transaction processors are also considered to be a part of the clearing and settlement process if they come into contact with financial product tokens.
But an AFS license is not the only requirement for companies planning to register an ICO. According to the new regulations, token issuers are required to have a compliance plan along with a product disclosure statement (PDS). These requirements are designed to block out projects that distort information in order to manipulate investors.
Additionally, any ICO offering securities tokens to investors must follow all the laws and regulations governing IPOs. This includes those relating to registration, licensing and disclosure. Regardless of what type of token an ICO offers, projects are required to follow the Australian Consumer Law. According to this law, an ICO is not allowed to use trading strategies that falsely create the appearance of high trading volumes for the project token.
“We see this as part of the process of the crypto industry growing up,” says Martin Asher, Chief Operating Officer of Lex Exchange. “The financial services industry in Australia is one of the most tightly regulated in the world and, while a large portion of the cryptocurrency market is currently not considered to be a financial product, there are some crypto products and tokens that are considered financial products because of the way in which they are utilized.”
How it will affect the market
The regulator was already showing its muscle before the changes in May. For example, in October 2018, ASIC closed the ICO of the Global Tech Exchange (GTE), which had intended to raise $50 million. Among the reasons for its decision, ASIC named “insufficient protection of investors’ rights.” As a result, GTE had to return money to investors and stop its ICO.
ASIC closed no less than six cryptocurrency projects between April and October 2018, when the first update of the crypto regulations appeared. The reasons were the same as in the case of GTE. In May, ASIC issued an official warning against the cryptocurrency project OneCoin, which had failed to obtain AFS and AC licenses.
Now, the new rules set the bar even higher. “ASIC has indicated that its definition of a ‘Financial Product’ is broader than other jurisdictions, which means that if a token is not classified as a security in another jurisdiction, it may be classified as a security under ours,” says Samuel Brooks, CTO at Australian blockchain company Block8.
So even though the new regulation went into effect just a few months ago, it’s already clear that crypto companies have a lot of work ahead of them if they are to stay in business.
Although the regulation has tightened, the market is responding well. Dan Crane, Head of Research and Innovation at Horizon State, says that the added regulations can bring sorely needed security to the industry — and with it, confidence. “Cryptocurrency has been seen as the ‘wild west’ and a high risk/reward scenario. If the new rules help stamp out bad actors, they are good for the industry as a whole,” says Crane.
And it’s not just Crane who is optimistic. Lex Exchange is among many leading cryptocurrency trading platforms that are welcoming the new regulatory framework, as it brings more clarity and transparency to the cryptocurrency market. “It is great that the governments and regulators are taking the crypto industry more seriously and a sign that we will see continued expansion in this area over the next few years. In order for the crypto industry to take the next step and begin to affect people in a meaningful way, a certain amount of regulation to protect the consumer is important,” says Asher.
While crypto businesses have to hustle to get in line with regulations, nothing much changes for trading platforms. Because they list tokens, which ASIC had already regarded as digital currencies, they are already compliant.
The cryptocurrency market needs a transparent and favorable ecosystem, and this cannot be created without regulations. Australia has avoided following the path of China and India, which have settled the security question by banning cryptocurrencies altogether. But even though a certain amount of implemented regulation is essential, it is crucial for regulators to find the best balance between allowing growth and protecting the public from bad actors at the same time.
For some initial adopters who saw crypto as a chance to operate out of the watchful eye of Big Brother, the additional oversight may not be welcome. But for ordinary traders and investors, it means peace of mind: they can now operate in a more safe and secure environment. And since ASIC pointed out that it would be further strengthening KYC and AML standards on all crypto assets, we can expect even more updates on the regulation of the Australian cryptocurrency market in the future.
Lex Exchange has been formed specifically with the intention of providing innovative, cost-effective and highly secure cryptocurrency exchange services to the rapidly growing marketplace of cryptocurrency buying/selling services. We believe that when dealing with any valuable product, exceeding regulatory requirements is the standard for serving our clients in the most effective way.