The Select Committee on Australia as a Technology and Financial Centre has launched a new round of consultation to review the federal policy framework around cryptocurrency and blockchain technology in Australia.
This provides an epic opportunity for Australia to lead the way on the next wave of digital innovation globally. A policy approach that allows for more clarity and flexibility for cryptocurrency business models will help to deliver economic growth not seen here since the rising commodity prices of the mid-2000s. However, with a heavy-handed, old-fashioned approach, the Australian economy could find itself lagging behind other nations willing to take a risk on decentralized technology.
Get it completely wrong, and Australia risks losing our most talented engineers and business leaders, who may exit the country to build the future of finance in overseas markets that better embody innovation.
The good news is the review is being chaired by Sen. Andrew Bragg, a forward-thinking Liberal party member who has his finger on the pulse of fintech developments globally. He has been a key advocate for the new Consumer Data Right (CDR) regime, which is a major policy intervention that introduced a data-sharing framework for Australian consumers. The CDR regime allows customers to share details on where they’ve been spending their money, which drives useful consumer tools like budgeting apps.
Outside of Australia, these government-led banking data-sharing arrangements are often referred to as “Open Banking” but it is testament to the scale and ambition of the CDR reform that describing it as Open Banking actually undersells the framework. The CDR is rapidly building the rules and rails for an economy-wide data sharing program that is unparalleled anywhere around the world. This means Australians will not only be able to share their banking data with third-parties building useful tools but also their energy, telco and insurance data. This will make much easier for Australians to make better decisions throughout their lives.
Once CDR is fully implemented for banking later this year the framework will be introduced to the markets for energy, telecommunications and insurance products. On the international stage, the CDR is already highlighting Australia as a nation taking digital economic growth superseriously. It’s also good to see the review being done by elected politicians at a federal level who have the mandate to set policy direction rather than these decisions sitting with regulators.
The issue with crypto in Australia right now
To date, Australian regulation on cryptocurrency is still nascent. Currently, Australian law does not treat cryptocurrency as money and the Reserve Bank of Australia (RBA) has no plans to release a central bank digital currency (CBDC) to retail customers.
Cryptocurrencies have been brought into scope for Australia's anti-money laundering framework, which does mean crypto exchanges need to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC). Elsewhere, the Australian Tax Office (ATO) has attempted to clarify how cryptocurrency is taxed for consumers in Australia but there is still confusion. Cryptocurrencies held by consumers with a profit-making intention are taxed like any other capital gain while those used for business purposes are treated as trading stock.
What is missing, though, is a consistent position on this sector at a federal level.
And that’s where this consultation comes in. So what can we expect from this Senate consultation on cryptocurrency and digital assets?
Primarily, the Committee has been tasked with finding ideas and recommendations that will promote Australia as a financial technology center through the blockchain and cryptocurrency sector. We know this is an industry that certainly can deliver significant economic growth but the committee will also be looking to ensure that Australian consumers are well protected.
Extending the fintech sandbox
One option the committee is likely to explore is extending the nation’s fintech sandbox to include cryptocurrency and blockchain projects. This approach has been favored by the Financial Conduct Authority in the U.K. and the recently introduced fintech sandbox in Spain. Sandboxes are fast becoming table stakes for innovative fintech businesses looking for a market to run their operations from, so it would be remiss for the committee not to explore this route.
World Bank research also shows these sandboxes work for both private firms and regulators, providing space for businesses to test new ideas with lower compliance costs while also giving regulators strong oversight on new projects pushing the boundaries of what is possible.
One important issue for the committee to consider here is whether to include crypto products in the current sandbox (and thus consider defining them as financial products) or to create a new one focused on cryptocurrency. The latter would be more work but also allow for a new bespoke approach rather than a rehashed version of old policy frameworks.
Consolidate a regulatory team
While exploring the sandbox, the committee might well also look at the regulators more broadly. Similar to other markets, cryptocurrency and decentralized finance (DeFi) regulation in Australia is currently being looked at by a mixture of regulators. It would be good to see Australia consolidate the policy and regulatory people working in this space into a single specialized regulatory unit.
This is a complex space where strong domain expertise is absolutely critical for these teams to make the right calls for different projects. If this does occur, I wouldn’t be surprised to see extensive recruitment efforts from the new unit to ensure it has all the skills required to do the job well.
Next up, the Select Committee will also inevitably look closely at when and if banks can restrict banking services to businesses engaging in delivering services related to cryptocurrency. The practice of “de-banking” has hit both individuals and business involved in cryptocurrency in Australia hard for a number of years. This practice is at best stifling innovation and at worst anti-competitive.
Banks are nervous about cryptocurrency. While some level of discomfort holds merit, the digital asset ecosystem has seen rapid worldwide maturation contrasted by little movement forward in its treatment from banks in the Australian market. The government has a role to play in ensuring that vested interests aren’t unfairly protecting the status quo. A strong position on the practice from this Select Committee would set a precedent and, if issues of anti-competitiveness are identified, we could well see a review on the practice from the Australian Competition and Consumer Commission.
Pushing the boundaries
If the committee wants to encourage inward investment it could also look at introducing innovative policies. Perhaps a new accreditation scheme for Australian projects that want to receive cryptocurrency deposits from consumers? This would give these cryptocurrency businesses clear standards and rules to adhere to whilst acknowledging these organizations are different to banks.
Importantly, this approach would give these businesses a legal status that will help to legitimize them in the eyes of consumers, regulators and other organizations. The committee could also explore a government-backed guarantee for a certain amount of cryptocurrency deposited in these government-accredited wallets. It does the same for fiat deposits in authorized deposit-taking institutions, so why not apply the same approach here?
It could also revisit its position on creating a central bank digital currency or stablecoin. This would show real commitment to taking DeFi seriously and there could be some interesting tax opportunities for the federal government if it captured a small transaction fee on an Australian dollar-linked stablecoin that was created or backed by the RBA.
Regardless of what the committee decides, it is clear that this is a once in a decade opportunity for Australia to take a strong position on decentralized technology. I’m excited and hopeful to see Australia take this opportunity by the horns.
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