Senator Andrew Bragg has released the draft Digital Assets (Market Regulation) Bill for community consultation. It aims to introduce legislation targeting crypto asset secondary service providers (CASSPrs), digital assets and stablecoins, including central bank digital currencies (CBDCs). The draft Bill follows Senator Bragg’s oft-cited report containing detailed recommendations for reform across Australia’s regulatory landscape.
In this alert, we outline the two main aims of the Bill and some important considerations.
New licensing regime
The first aim is to create the groundwork for a special licensing regime whereby a license (or an “approved foreign license”) would be required in order to operate a digital asset exchange, provide a digital asset custody service or issue stablecoins in Australia. The draft Bill would also seek to extend supervisory powers to ASIC, to act as the regulator for the new licensing regime.
Digital Yuan requirements
In an effort to combat the establishment of a foreign currency within Australia, the second section of the draft Bill seeks to establish strict reporting requirements for designated Chinese banks operating within Australia, if they have facilitated the availability or use of digital Yuan (e-CNY, a CBDC issued by the People’s Bank of China and the first CBDC to be backed by a major economy and foreign government).
These reporting requirements for the designated banks include yearly reporting on:
- the number of Australian businesses that have accepted payments using e-CNY;
- the number of digital wallets for Australia customers which are open; and
- the total amount of e-CNY held in those digital wallets by Australian customers.
Once collected, this information would be provided to The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia, for further reporting to the Minister and the Parliamentary Joint Committee on Intelligence and Security.
The draft Bill is now available.
Some initial thoughts
The draft Bill follows – and in a number of areas, expands on – the recommendations made in Senator Bragg’s detailed report last year.
One expanded area relates to the proposed requirements surrounding the issue of stablecoins. Under the draft Bill, stablecoins would require the full amount of the face value of the liabilities for the stablecoins on issue from the relevant issuer to be held in reserve and in an account kept with a regulated Australian bank in the currency upon which they are to represent. This requirement would effectively remove the ability for issuers to issue algorithmic stablecoins. Algorithmic stablecoins rely upon an algorithm that pegs itself to a physical currency. They are not backed by collateral and instead rely upon that algorithm to maintain their 1:1 price peg. We suspect the very public billion-dollar collapse of Terra Luna earlier this year may have inspired this approach.
Important note
Readers should be aware that the Digital Assets (Market Regulation) Bill 2022 is a “private members’ / senators’ Bill”. Historically, private member bills rarely succeed. However, they can have the effect of prompting a majority government to legislate about a matter, and that may well be Senator Bragg’s intent here. Consultation is open until 31 October 2022.
Australia’s digital asset regulatory landscape is uncertain but looks set to reform rapidly. Contact HopgoodGanim’s Digital Assets team team if you would like guidance about digital assets regulation.