Proof of Case

The Senate’s Economics Legislation Committee recently released its report on the Digital Assets (Market Regulation) Bill 2023. The bill was introduced by Senator Andrew Bragg on 29 March 2023 as a private member’s bill.

The bill sought to implement a licensing regime for digital assets and to establish reporting requirements for the circulation of central bank digital currency in Australia.

The report was issued after the Committee advertised the inquiry and wrote to stakeholders inviting them to make written submissions. The committee also held a public hearing in Canberra on 25 July 2023.

The report helpfully:

• summarises the bill;
• summarises the current state of regulation of cryptocurrency in Australia;
• notes the Treasury’s consultation on crypto asset secondary service providers and token mapping;
• states the key issues raised by submitters and witnesses;
• comments upon different approaches to regulating cryptocurrency in Australia – for example bespoke regulation vs adapting existing regulations; and
• notes difficulties or shortcomings arising from the content of the bill.

Ultimately the committee made two recommendations in the report:

1. the Australian Government continue to consult with industry on the development of fit-for-purpose digital assets regulation in Australia (at paragraph 2.141); and
2. the bill not be passed (at paragraph 2.142).

In coming to that conclusion, the committee noted:

• further regulation is needed to capitalise on opportunities for the industry, to promote consumer confidence and genuine market integrity outcomes;
• new regulation should clarify the application of existing laws and address where regulatory shortfalls may exist;
• inquiry participants emphasised the importance of ensuring digital assets regulation are congruent with international regimes. Many inquiry participants held concerns with the bill’s proposed definitions, and licensing requirements left significant details to delegated legislation which was not presented with the bill for consideration;
• the bill is at odds with the approach the government is undertaking to ensure current and new regulations are well considered and effective in supporting consumers and the digital assets industry;
• considering the evidence presented to the inquiry, the committee was of the view that the bill lacks the detail and certainty that investors, consumers and the industry should be provided with. Crucially, the bill fails to interoperate with the established regulatory landscape, creating a genuine concern for regulatory arbitrage;
• a bespoke regulatory framework is not a supported or workable regulatory setting for the industry; and
• the token mapping exercise the Australian Government has recently undertaken. The committee noted that further consultation on digital assets licensing and custody requirements was anticipated in the coming weeks.

Coalition Senators Andrew Bragg and Dean Smith prepared a dissenting report which, in respect of the bill, recommended that the Senate pass the bill with minor amendments, being:

• NFTs be excluded from the definition of regulated digital assets;
• certain asset-based tokens be excluded from the definition of stablecoin; and
• the transition period be extended from 3 months to 9 months.

Given the recommendations of the committee, it appears likely the government will continue with its existing consultation process. The committee report noted that Treasury officials confirmed to the committee, on 25 July 2023, that the government’s consultation paper on custody and licensing arrangements was due to be released within the ‘next few weeks’. In light of that statement, hopefully that consultation paper will not be far away.

Where can I find the report?  The Senate Economics Legislation Committee Report on the Digital Assets (Market Regulation) Bill 2023