Treasury pledges crypto regulation next year after FTX collapse

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Custody remains one of the largest issues facing the growing number of crypto investors and businesses in Australia. It refers to where money or tokens are stored and who is responsible for keeping them secure.

If we developed custody regulations by next year, we would be forerunners around the world, Kate Mulligan, partner at Sydney law firm King Irving, said.

At the moment, its neck and neck between Singapore and Australia in Asia, and it would be great if Australia could be a place to foster this kind of business innovation.

ASIC suspend license

Custody was a key issue in the FTX collapse. Investors were shocked last week to discover their accounts with the global trading platform were frozen after revelations the Bahamas-based company had transferred about $US10 billion of customers money to another trading business.

About 30,000 Australians are hoping to claw back losses through liquidators managing the local FTX Australia subsidiary, which has been placed in administration.

On Wednesday, the Australian Securities and Investments Commission suspended the financial services license FTX Australia had been using.

Crypto regulation has been a hot-button issue for the past two years. Last year, Senator Bragg co-authored a landmark Senate Select Committee report into digital asset regulation, investigating issues such as regulation and consumer protection.

Liberal Senator Andrew Bragg conducted an industry consultation last year.

The lions share of recommendations which were well-received by Australias growing crypto industry were accepted by Treasury at the time.

In September, he drafted a private members bill that would require Australian-based custodians for digital assets. In an op-ed in The Australian Financial Review, he attacks Assistant Treasurer and Minister for Financial Services Stephen Jones for showing little to no interest in digital assets, arguing last years committee has done most of the heavy lifting already.

Its not going to be too difficult because were not regulating every single token, Senator Bragg said on Wednesday afternoon.

Rather were looking to regulate the gatekeepers in the exchanges.

Should Treasurer Jim Chalmers roll out crypto custodial and exchange licensing regulations next year, industry participants say it would elevate Australia to one of the few jurisdictions with firm guidelines around the fast-growing sector that is plagued by hacks and bad risk management.

Liam Hennessy from Gadens in Brisbane said: Custody wouldnt matter as much if these exchanges were just trading US to Australian dollars because if that business falls over, the money is still in your account.

But some crypto exchanges act more like banks and market makers, where they take customer deposits and then do all sorts of things like trading and lending with them. That behavior needs oversight.

The news came on the same day Brisbane-based crypto exchange Digital Surge froze customer accounts because of its exposure to the bankrupt FTX.

Digital Surges troubles are the latest among crypto exchanges such as BlockFi and Voyager, which are teetering on the edge of bankruptcy and reflect the growing contagion across the industry.

Singapore has developed a crypto exchange licensing scheme which has so far issued six licenses, including to Australian-based exchange Independent Reserve.

The worlds largest crypto exchange, Binance, was knocked back for a Singaporean license, as was Sam Bankman-Frieds FTX.

Australian-based CoinJar was one of the first exchanges registered with the UKs Financial Conduct Authority.

Hong Kong is looking closely into custody arrangements, and has developed a regulatory regime for businesses managing crypto assets.

The European Union is the furthest ahead in defining different digital assets according to their function, and the United States has developed a tax environment to foster investment in crypto and web3 technology.

Fix: CoinJar is registered with the United Kingdoms Financial Conduct Authority. An earlier version of this story incorrectly stated CoinJar had an exchange license in Singapore.

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