The Australian Senate blocked a bill for cryptocurrency exchange licensing. With the bill rejected, policymakers are debating the necessity of dedicated crypto regulations.
On one side, proponents advocate for a comprehensive crypto framework, similar to the EU’s MiCA regulation . On the other, some Australians favor adjusting existing legislation, inspired by the UK’s approach, to better suit the crypto sector’s requirements.
First introduced by Liberal Senator Andrew Bragg in September, the Digital Assets (Market Regulation) Bill was Australia’s most ambitious attempt at regulating the crypto sector to date.
The Bill, encompassing crypto exchange licenses, custody services, stablecoin issuance, and CBDC rules, encountered challenges in parliament. With the ruling Labor party’s Senate majority, opposition-backed legislation usually faces strong resistance.
On Monday, September 4, 2023, the Economics Legislation Committee, chaired by Labor Senator Jess Walsh, announced to have rejected Bragg’s bill.
In a report explaining their decision, the committee said the bill “lacks the detail and certainty that investors, consumers, and the industry should be provided with.”
What’s more, they found that the legislation “fails to interoperate with the established regulatory landscape.”
In a dissenting report, opposition Senators argue that “Labor has put regulating crypto in the slow lane.” They point to progress made elsewhere as evidence that Australia is falling behind other nations in efforts to regulate the crypto sector.
Specifically, advocates for the Digital Assets Bill identified the EU’s MiCA regulation and the UK’s Financial Services and Markets Act (FSMA ) as two instances of crypto regulations that were passed in Europe this year.
The dissenting Senators are correct to highlight MiCA and the FSMA as landmark pieces of legislation that will shape the European crypto sector for years to come. Yet, the approaches taken by the EU and the UK diverge in many respects.
For Australian policymakers who hope to model crypto policy on European regulations, the two approaches present quite distinct paths.
In the UK, crypto regulations have been established piece by piece, through multiple changes to the law.
Even the FSMA, which is the country’s most extensive piece of legislation on crypto, doesn’t define a comprehensive regulatory framework for the sector.
Instead, the FSMA is more a post-Brexit overhaul of laws governing the financial services sector to ensure they are fit for the present day.
As such, it includes provisions that deal with cryptocurrencies. But it also attends to a host of financial and technological innovations that weren’t covered by the acts it amends.
Meanwhile, the Financial Conduct Authority (FCA) has implemented a series of regulations governing how businesses advertise, market, and sell cryptocurrencies.
The high degree of discretion granted to the FCA is one characteristic feature of British financial regulation in general.
While its overall objectives are defined by laws like the FSMA, at the day-to-day level, the FCA is relatively free to interpret those laws flexibly.
Contrasting the UK’s piecemeal approach, EU’s MiCA imposes sweeping reforms to crypto regulation through a single legislative instrument. For it to function as intended, however, MiCA needs to operate across borders.
For example, MiCA imposes what is referred to as the “travel rule,” requiring crypto-asset service providers to collect certain information about the sender and beneficiary of transfers.
In the context of the EU’s single market, enforcing the travel rule means defining what data needs to be collected in a way that translates between different countries’ identification standards.
MiCA, a transnational rulebook for crypto firms operating in the EU, defines standardized terms for member states’ domestic legislation and sets a minimum oversight threshold to prevent unilateral deregulation for the crypto sector.
Large sections of the legislation provide highly specific definitions. Following an established tradition, this legalistic approach is favored by the EU as a means of easing cross-border friction and equipping courts to deal with potential disputes.
For policymakers in Australia, there are advantages to both the flexible approach taken in the UK and the rigid definitions favored by the EU.
For instance, the Senate committee report highlights the Digital Law Association’s suggestion to replace the term ‘digital asset’ with ‘token’ in the legislation. This change would make the bill more technology-neutral and adaptable to various digital asset use cases.
Likewise, FinTech Australia criticized the Bill’s definition of “stablecoin” over concerns that it could inadvertently capture asset-based tokens within within the proposed rules.
Overall, the trade body noted that its members “generally do not support a bespoke licensing regime separate to financial services licensing for crypto service providers.”
On the other hand, supporters of the now-rejected bill emphasize that the absence of a clear rulebook is already having a detrimental effect on Australia’s crypto sector
As quoted in the dissenting Senators’ report , the crypto lawyer Joni Pirovich said that “there has been a mass exodus of talent and capital from Australia since around mid-2022, and that’s not coming back anytime soon unless we have a bespoke regulatory framework or clarity in how the existing regime applies.”