Senate inquiry calls for new regulations to make Australia a crypto hub

  • By Zilla Efrat

The federal government should change its tax, licensing, and regulatory regimes to encourage digital and crypto-asset businesses to set up in Australia, a Senate inquiry recommends.

In its final report released yesterday, the Senate’s Committee on Australia as a Technology and Financial Centre notes that Australia could benefit from becoming a leader in the digital assets space.

But to grasp the opportunity, it will have to update its regulatory frameworks, drive innovation and enhance the country’s competitiveness.

The committee observes that recent surveys show that 25 per cent of Australians either currently or have previously held cryptocurrencies, making Australia one of the biggest adopters of cryptocurrencies on a per capita basis.

But while other jurisdictions have moved forward in attempting to create regulatory frameworks that give market participants certainty and provide consumer protections, Australia has not yet introduced fit-for-purpose regulatory systems for these emerging technology sectors.

“This is creating uncertainty for project developers, businesses, investors and consumers,” the committee says.

It has put forward a series of eight recommendations to address these issues.

The committee says two prominent Australian-founded digital currency exchanges (DCEs) have recently gained regulatory licenses in Singapore and the UK respectively, “showing what Australia is missing out on by not developing an appropriate framework here”.

“It is clear that the current regulation of DCEs, which is generally limited only to registration with AUSTRAC, is inadequate for businesses that in some cases are dealing with asset volumes in the billions of dollars.

“A properly designed market licence for this sector will assist the sector to mature and create confidence.”

In its report, the committee calls for a token mapping exercise to classify the various types of crypto-asset tokens and other digital assets being developed in the market, to ensure that the regulatory classifications for these assets are fit-for-purpose.

“This exercise should take account of the various approaches to classifying digital assets that have occurred in other jurisdictions in recent years,” it says.

“A new decentralised autonomous organisation legal structure is needed to ensure that emerging types of blockchain-based organisations can be established with clarity as to how they can operate in Australia. This approach has already been trialled in other jurisdictions, and in practical effect will operate similar to a limited liability company.”

The committee adds that a review of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regulations is required to ensure that these regulations are fit-for[1]purpose and do not undermine innovation.

“In particular, issues around the implementation of the Financial Action Task Force 'travel rule' have been raised with the committee as requiring attention,” it says.

It argues that tax rules for digital assets also require further clarification.

“In particular, the rules around capital gains tax (CGT) for cryptocurrency and digital assets need to be updated to ensure that new types of technology structures are appropriately accounted for, and digital asset transactions only create a CGT event when they genuinely result in a clearly definable capital gain or loss.”

The committee also recommended that those undertaking digital asset “mining” and related activities in Australia receive a company tax discount of 10 per cent if they source their own renewable energy for these activities.

Other suggestions are that Treasury leads a policy review of the viability of a retail central bank digital currency in Australia and that a clear process for businesses that have been de-banked be introduced.