Australia Outlines Tighter Rules For Cryptocurrency Exchanges, Includes Licenses And Reviews

While the cryptocurrency industry is still reeling from the series of enforcement actions executed by the U.S. Securities and Exchange Commission, the Australian federal government is forging ahead with its plans to tighten rules for cryptocurrency exchange platforms operating in the country, which, when enacted, would require them to acquire a financial services license issued by the local regulator.

The Australian Treasury, in a newly released consultation paper titled "Regulating Digital Asset Platforms," noted that the new regulatory framework intends to protect consumers by addressing potential harms, while ensuring support for the innovation of the digital asset industry.

The proposed regulations align with other jurisdictions and the "government is acting methodically to ensure that consumers are adequately protected, and innovation can flourish," Australian Treasurer Jim Chalmers said in a statement.

The new regulations mandate cryptocurrency exchange platforms -- holding over $3.2 million or individuals holding over $946 in crypto -- will need to secure a license from the country's financial regulator, the Australian Securities and Investment Commission (ASIC).

The proposal is still at its consultation stage and the Australian government will accept feedback until December 1 with the consultation on the draft bill to continue next year.

There are also proposed rules on custody and transaction standards that are inspired by the regulatory frameworks used in other countries like Singapore, Canada and the U.K.

The latest development in the regulatory framework proposed by the Australian Treasury surfaced following the $1.5 trillion crypto chaos that exposed the risky practices of some crypto exchange platforms, which triggered the collapse of the crypto empire FTX.

"Collapses of digital asset platforms, both locally and globally, have seen Australians lose their assets or be forced to wait their turn amongst long lines of creditors," the proposal paper read, adding, "These reforms seek to reduce the risk of these collapses happening, by lifting the standard of their operations and increasing their oversight."

Last month, ASIC sued Bit Trade, the provider of the Kraken crypto exchange in Australia, for "allegedly failing to comply with the design and distribution obligations (DDO) for its margin trading product."

In a statement issued by the regulator at the time, it noted, "Since the commencement of the design and distribution obligations on 5 October 2021, at least 1160 Australian customers have used the margin trading product, incurring a total loss of approximately $12.95 million."

ASIC claimed despite notifying Bit Trade, it failed to comply with its obligations in June 2022 and continued to offer its product.

"ASIC notified Bit Trade of its concerns regarding the failure to comply with the design and distribution obligations in June 2022. Bit Trade continues to offer the product to Australian customers without a target market determination," the regulator alleged.