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In a significant move towards integrating cryptocurrencies into the traditional financial system, the Australian government has unveiled draft legislation proposing to regulate digital asset platforms under the existing Australian Financial Services Licence (AFSL) framework. This initiative, open for public consultation until October 24, 2025, seeks to enhance consumer protection, ensure market integrity, and provide clearer operational guidelines for crypto service providers.

Extending Traditional Financial Oversight to Crypto Platforms

The proposed legislation aims to amend the Corporations Act 2001 to include digital asset platforms and tokenized custody platforms under the AFSL regime. This extension would subject crypto exchanges and related services to the same regulatory standards as traditional financial intermediaries, such as banks and brokers. By doing so, the government intends to provide a consistent regulatory approach that aligns digital asset activities with established financial practices.

Key Provisions of the Draft Legislation

Under the proposed framework, crypto service providers would be required to obtain an AFSL to operate legally in Australia. This licensing would impose several obligations, including:

• Honesty and Transparency: Platforms must operate with integrity, providing clear and accurate information to consumers.
• Safeguarding Client Assets: Providers would be mandated to implement measures to protect client funds and digital assets.
• Disclosure Requirements: Platforms would need to disclose material information to consumers in a timely and accessible manner.
• Operational Standards: The legislation outlines specific standards for activities such as staking, wrapped tokens, and token infrastructure operations.

These provisions aim to mitigate risks associated with digital asset transactions and enhance consumer confidence in the sector.

Exemptions for Small-Scale Operators

Recognizing the diverse nature of the crypto industry, the draft legislation includes exemptions for smaller operators. Platforms handling less than $5,000 per customer or less than $10 million in annual transactions would be exempt from the licensing requirements. This approach ensures that the regulatory framework is proportionate to the scale and risk profile of the service provider.

Penalties for Non-Compliance

To enforce adherence to the new regulations, the proposed legislation stipulates significant penalties for non-compliance. Entities found in breach of the AFSL obligations could face fines up to AUD 16.5 million, or 10% of their annual turnover, whichever is greater. These stringent penalties underscore the government's commitment to maintaining a secure and trustworthy digital asset environment.

Industry Reactions and Stakeholder Engagement

The announcement of the draft legislation has elicited varied responses from industry stakeholders. Major crypto exchanges operating in Australia have expressed support for the move, viewing it as a step towards legitimizing the sector and fostering greater institutional investment. However, some smaller operators have raised concerns about the potential regulatory burden and the need for a balanced approach that considers the unique characteristics of digital asset businesses.

The government has emphasized the importance of stakeholder consultation in shaping the final legislation. Feedback from industry participants, consumer advocacy groups, and other stakeholders will be considered to refine the regulatory framework and ensure it effectively addresses the challenges and opportunities within the crypto sector.

Implications for the Future of Crypto Regulation

The proposed integration of crypto platforms into the AFSL framework represents a significant shift in Australia's approach to digital asset regulation. By aligning crypto services with traditional financial regulations, the government aims to enhance consumer protection, promote market stability, and encourage responsible innovation within the sector.

If enacted, this legislation could serve as a model for other jurisdictions seeking to regulate digital assets within existing financial frameworks. The outcome of Australia's consultation process and the subsequent implementation of the legislation will be closely watched by global regulators and industry participants alike.