The Australian Securities and Investments Commission (ASIC) has introduced draft proposals that could significantly reshape the crypto landscape in Australia, mandating most crypto businesses to secure financial licenses. Released on December 4, the consultation paper suggests a broad classification of digital assets as financial products, thereby compelling crypto exchanges and related firms to navigate through stringent licensing processes.
Kate Cooper, CEO of Australia and head of APAC at Zodia Custody, described the guidance as a “wake-up call” for the industry, emphasizing that compliance is now mandatory, affecting both local and international players who must reassess their custody and compliance practices.
The proposed rules necessitate that businesses offering financial services, including dealing in financial products, must obtain an Australian Financial Services License (AFSL), and platforms enabling trading might need an Australian Market License. This shift could impose substantial financial and operational burdens on crypto firms, leading to concerns about the sustainability of smaller startups.
Liam Hennessy, a partner at Clyde and Co and adjunct professor at the University of Sydney, highlighted the disproportionate impact on smaller businesses, suggesting that regulatory costs might push them out of the market. Similarly, crypto lawyer Joni Pirovich pointed out on LinkedIn that launching crypto ventures in Australia might become as expensive, if not more, than doing so offshore, potentially driving Australian innovators abroad.
Charlie Karaboga, co-founder of Block Earner, which faced legal action from ASIC in 2022 over an unlicensed product, expressed concerns about the practicality of these requirements for startups, noting the high financial thresholds for obtaining an AFSL.
Swyftx CEO Jason Titman acknowledged the uniqueness of Australia’s regulatory approach, stating, “Rightly or wrongly, Australia is going it alone,” in terms of how crypto exchanges are regulated.
Despite the stringent measures, industry leaders recognize the positive aspect of gaining regulatory clarity. Hennessy praised the guidance for providing much-needed market clarity, while Cooper noted ASIC’s expansive view on what constitutes a financial product.
ASIC Commissioner Alan Kirkland defended the move, stating that the goal is to balance innovation with consumer protection, emphasizing that a well-regulated system supports consumer confidence, market integrity, and spurs innovation. He encouraged stakeholders to participate in the consultation process, with the final guidance expected to be published in mid-2025 after considering all feedback.
This regulatory shift, while providing clarity, might inadvertently lead to an exodus of crypto innovation from Australia, as businesses weigh the costs of compliance against the benefits of operating in a less regulated environment elsewhere.