Australia is the next jurisdiction to propose regulation of digital assets. On 16 October 2023, the Treasury released a consultation paper seeking industry feedback on a proposal to regulate digital asset platforms through the existing Australian Financial Services Licence (AFSL) regime. Australia follows the footsteps of the EU, UK, Canada, Hong Kong and Singapore.
Read more: Crypto regulation coming to AustraliaConsultation is open until 1 December 2023.
What is the proposal?
Certain asset holding arrangements will be regulated, requiring platform providers (e.g. exchanges and custodians) and other intermediaries performing financial services in relation to digital asset facilities (e.g. brokers, arrangers, agents, market makers, and advisers) to hold an AFSL. A person who carries on a ‘financial services business’ in Australia must hold an AFSL under the Corporations Act 2001 (Cth) covering the provision of the financial services (unless an exemption applies).
What is the current regime?
Currently, an AFSL is required only if the underlying product is a financial product. A financial product includes a product whereby a person makes an investment or manages financial risk. However, there is lack of clarity as to when a digital asset product might become a financial product.
What does this mean for insurance?
The proposal is a pivot from Australia’s previous proposal to create a separate licensing regime for crypto asset service providers. Many industry participants commented the previously proposed regime would have led to confusion in the market and unresolved interactions between the two regimes where providers were faced dual regulation.
For insurers in the financial lines space, the AFSL regime is familiar ground with a number of insurers having first hand experience to exposures in this space. AFSL holders must have ‘adequate’ professional indemnity insurance but it is not clear whether this would extend to digital asset providers. From a policy perspective, having adequate compensation arrangements in case things go wrong is definitely desirable.
What next?
Consultation is open until 1 December 2023. Read the proposal here.
Disclaimer: This article provides general information only and does not constitute legal, financial or other professional advice. It does not address the circumstances of any particular individual or entity. You should seek your own professional advice.