Crypto leaders concerned Aussie law hasn’t kept up with innovation

Cryptocurrency advocates are concerned Australia’s current regulatory framework leaves the sector in a “vulnerable” state.

Unlike in Marty McFly’s case, a DeLorean can’t fix the problems spurred from Australia’s outdated crypto laws Pic: Getty Images

Australia is struggling to keep up with the digital currencies of our future with outdated regulations leaving the sector “vulnerable” according to some industry experts.

Cryptocurrency is no longer the niche interest it once was. Today, more than 25% of Australians – or 6 million – own cryptocurrency. But the laws and regulations set by the top end have failed to keep up with the constantly evolving sector that has captivated businesses and investors alike.

Digital Economy Council of Australia managing director Amy-Rose Goodey describes the current environment as challenging for crypto businesses.

“While we appreciate the increasing engagement with our regulators, without clarity, there’s a palpable sense of vulnerability throughout the industry,” she says.

Goodey also says Australia has enjoyed a thriving crypto ecosystem for over a decade, but progress on the legislative front has not kept pace with growth from investors and businesses.

Australia has taken some important steps towards reform, including consulting on a draft approach that is broadly supported. This would deliver a regulatory framework for crypto, but more legislative efforts are still needed to enact this.

Despite the best efforts of local industry players, the Treasury and others, legislation could be delayed into 2025 (or beyond), which is a deeply unsatisfactory outcome for crypto users and businesses in Australia.

“There is strong evidence to suggest that the lack of regulatory clarity is driving businesses to seek opportunities abroad, impacting jobs, skills and talent resulting in significant economic impact,” Goodey says.

“We need to be a fast follower, working in line with our global neighbours to ensure Australia doesn’t miss out on leadership in a market that is set to be worth $3 trillion in global trade by 2030.”

The Kraken Case Study

One recent Federal Court ruling has exposed a flaw in Australia’s regulatory system when it comes to cryptocurrency.

The crypto industry says the decision in ASIC’s case against Kraken is evidence of the degree to which Australia’s cryptocurrency ecosystem is in regulatory limbo, fueling investment uncertainty and a flight of talent. But it has also been a catalyst for industry-wide calls for urgent crypto legislative reform, now more than ever.

The judgment determined that when Kraken provides its Margin Extension product in fiat currency (for example, Australian dollars), a Target Market Determination is required. However, when the margin is extended in cryptocurrency, these obligations did not apply.

A Target Market Determination is a customer-focused document that describes who a product is appropriate for (target market), and any conditions around how the product can be distributed. It also describes the events or circumstances where the product provider may need to review the Target Market Determination for a financial product.

Jonathan Miller, Kraken General Manager for Australia and Rest of World says: “This is undoubtedly a technical legal case with a critical takeaway for the average Australian crypto enthusiast: The current law is inappropriate and incapable of adequately regulating crypto.”

“While we are disappointed with the ruling, we’ve quickly moved to adjust our offering to ensure it is compliant. We’ll also continue to advocate for the bespoke crypto legislation that unlocks the broader economic opportunity crypto innovation brings to Australia.”

The Court’s judgement essentially highlights that existing laws might not encompass all aspects of crypto, as previously assumed by ASIC. Both the crypto industry and legal experts agree that legislation accompanied by clear guidance, not continued reliance on expensive and drawn-out legal battles, must fill this gap.

The Global Competition for Crypto Regulation

In North America, Europe and beyond, governments are moving fast to introduce regulations to support growth and trust in crypto assets.

Liam Hennessy is a Partner at Clyde & Co who specialises in financial regulation law and works closely with policymakers, including ASIC, on regulation for blockchain assets.

“Other markets are racing to adopt this technology,” Hennessy says.

“While we are taking steps forward with the Treasury and ASIC to regulate the industry, there hasn’t been enough political support here, despite the massive economic and social equality benefits.”

“Australia needs the same level of considered and targeted political support as our neighbours in the UK and US, which goes beyond just regulation, to attract investment from major players around the world, protecting businesses and consumers, and allowing them to make decisions with more certainty.”

Kraken’s Miller has applauded global regulatory progress for two reasons and believes it is “vital work for the growth of this revolutionary technology”.

“Firstly, clear regulation that protects investors while also encouraging innovation in the sector allows both individuals and businesses to harness the technological opportunities within crypto,” Miller says.

“Furthermore, developing a regulatory framework provides clear pathways for investment into the Australian economy.

“Attracting capital to the local ecosystem can stimulate economic growth as more developers set up crypto companies and protocols within Australia, drawing upon local talent from established fintech hubs in Sydney and Melbourne.

“However, without clear rules of the road, it is harder to encourage capital investment, which can result in opportunities migrating elsewhere.”

This article was developed in collaboration with Kraken, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

Originally published as Crypto leaders concerned Aussie law hasn’t kept up with innovation