Australia has finally put concrete proposals on the table to regulate cryptocurrency service providers, releasing draft legislation that would bring exchanges, custodians and stablecoin issuers under the same umbrella as mainstream financial services.
The consultation, open until October 24, signals the government’s intent to shift from piecemeal enforcement to a defined framework for digital assets.
What the draft proposes
At the heart of the plan is a requirement for exchanges and custodial platforms to operate under an Australian Financial Services Licence (AFSL). That would place them on the same footing as brokers or fund managers, with obligations to deal fairly with clients, manage conflicts of interest and meet capital and audit requirements.
Stablecoin operators would fall into a separate category, overseen through a stored-value facility regime similar to how prepaid cards and e-money are handled. Oversight is expected to fall under the Australian Prudential Regulation Authority (APRA), while the Australian Securities and Investments Commission (ASIC) would handle AFSL enforcement and AUSTRAC would continue its role in anti-money laundering compliance. Issuers would need to maintain reserves, guarantee redemption rights and publish clear disclosures.
The rules go further than simply folding crypto into existing law. Tailored obligations are proposed for digital assets, including:
- Stricter custody standards
- Operational resilience measures
- Segregation of client funds from company money
Penalties for non-compliance are significant — potentially reaching A$16.5 million, 10% of turnover or three times the benefit gained, whichever is greater.
To reduce the compliance load on smaller firms, Treasury has suggested relief for platforms that keep balances under A$5,000 per customer and report less than A$10 million in annual turnover. Transitional arrangements are also on the table to avoid an overnight shift that could destabilise the market.
Why now
Until now, Australia has relied on a patchwork approach to regulating crypto. ASIC has taken enforcement action against unlicensed operators, while AUSTRAC has focused on money-laundering compliance. But gaps remain — especially around custody risks, insolvency scenarios and the broader question of whether consumers can trust platforms holding their assets.
The government says the new regime is intended to close those gaps by giving good actors legal certainty and pushing out those unwilling to meet higher standards. It also points to international momentum, with Europe’s MiCA framework, evolving US rules and Singapore’s integrated approach setting the tone globally.
For the industry, a defined set of obligations could also help with a long-running pain point — access to traditional banking. Many local exchanges have struggled to maintain accounts as banks de-risked their exposure. A clear licensing path would make it harder to justify blanket debanking.
Points of contention
Even so, the draft is unlikely to please everyone. Defining what falls in or out of scope will be contentious. While non-financial tokens and decentralised protocols are intended to be excluded, token issuers, infrastructure providers and hybrid projects will be watching closely to see if they are swept up.
Compliance costs are another flashpoint. Meeting licensing, capital and reporting standards is a serious undertaking, particularly for startups. While the low-balance exemptions provide some relief, the thresholds themselves will be debated.
Timing will matter as well. A rushed implementation risks leaving operators stranded between regulatory expectations and operational reality. Regulators themselves will also need resources to handle a wave of licence applications and ongoing supervision.
Why investors should pay attention
For investors, regulation is not just about rules and penalties — it is about legitimacy. A formal regime makes it easier for institutions to allocate capital to the sector and gives retail investors more protection if things go wrong. Clear standards on custody, disclosure and redemption rights could help avoid repeats of the collapses that have dogged the global industry in recent years.
For companies already operating in the space, the draft rules change the question from whether they will be allowed to operate to whether they can meet the new bar. Those that do may find themselves in a stronger position, with greater access to capital and clients. Those that cannot may be forced out — or offshore.
The consultation period now offers a chance for both industry and investors to shape the final outcome. The decisions made over the next month will determine whether Australia builds a trusted framework for digital assets — or risks constraining innovation through regulatory overreach.