Cryptocurrency exchanges including Coinbase, Kraken, eToro and Swyftx could soon face a regulatory shake-up in a bid to protect investors and offer the sector a legitimacy lifeline.
With tens of thousands of Australians suffering significant losses due to recent crypto crashes and frauds, Treasurer Jim Chalmers and Financial Services Minister Stephen Jones are set to unveil a suite of proposed reforms on Monday aimed at increasing oversight and lifting obligations on the sector.
“We are releasing a proposal paper today that recommends making crypto exchanges and digital asset platforms subject to existing Australian financial services laws,” Chalmers and Jones said in a statement announcing the legislative overhaul.
“The proposed reforms seek to reduce the risk of these collapses happening by lifting the standard of the operation of platforms and increasing oversight.”
Across the globe, the crypto industry has been grappling with a series of bankruptcies and implosions – most infamously the spectacular collapse of Sam Bankman-Fried’s FTX platform that has hit almost 30,000 Australians, eroded trust in the sector and spurred calls for increased regulation.
According to analysis by the Commonwealth Bank, Australians are estimated to have invested $20bn into cryptocurrencies in 2021, however much of this was lost as the market tanked in 2022.
The paper also recommends requiring platform operators to obtain an Australian Financial Services Licence.
Exchanges currently face a relatively soft regulatory environment overseen by AUSTRAC, while markets that deal in financial products face regulation by ASIC.
In addition, the proposed reforms also include new obligations on digital asset platforms. This includes the establishment of new standards for holding tokens, custody software, and when making transactions with tokens.
Crypto exchanges have previously voiced their support for regulation as it will help offer the industry greater legitimacy.
Feedback on the proposed reforms is due by December, with draft legislation expected in the new year.
The government has previously been accused of dragging its heels on regulation of cryptocurrencies with Liberal senator Andrew Bragg calling on for urgent legislative protections for consumers and greater legal certainty to developers in a parliamentary committee.