In this article we discuss the joint media release 1 delivered by Australian Treasurer Jim Chalmers on Monday 22 August 2022, noting that the Australian federal government is continuing its work to reform the regulation of crypto assets under Australian law.
As a first step in its reform agenda, Treasury will prioritise ‘token mapping’ work in 2022. This work will involve identifying how crypto assets and related services should be regulated, with the goal of balancing new and emerging technologies while safeguarding consumers.
Ultimately, this token mapping exercising will seek to ‘identify notable gaps in the regulatory framework, progress work on a licensing framework, review innovative organisational structures, look at custody obligations for third party custodians of crypto assets and provide additional consumer safeguards’.
In our view, this continued work to categorise and classify crypto assets ahead of clearer regulation under Australian law is a significant step in the right direction. As matters currently stand, businesses (and their advisors) operating in the crypto sector are required to navigate through a murky and often untested combination of securities, financial services and consumer laws. A key consideration in this process is always whether a specific crypto asset is in fact a “financial product” and thereby regulated under the Australian financial services regime. To the extent that crypto assets are in fact able to be clearly identified and “mapped” as part of this exercise, this will, in our view, achieve two outcomes. First, it will achieve the goal of informing the development of further regulation in the sector in due course. Secondly, and perhaps more useful in the interim for businesses and their advisors operating in this space, such a “token map” will provide more clarity in applying and interpreting current Australian law in respect of individual crypto assets while more tailored regulation is developed.
Token mapping has been on the federal government’s agenda for well over a year now. The report delivered by Senator Andrew Bragg to the Senate Committee in October 2021 (Bragg Report) recommended that the Australian Government (through Treasury and with input from other relevant regulators and experts) conduct a token mapping exercise to determine the best way to characterise the various types of digital asset tokes in Australia. On 8 December 2021, the Government agreed in-principle to the recommendations made in the Bragg Report and Treasury subsequently issued a further consultation paper in March 2022 (CASSPrs Consultation Paper) primarily in relation to crypto asset secondary service providers, but also seeking early views on the token mapping process.2 The CASSPrs Consultation Paper contained a non-exhaustive list of classes of crypto assets identified by treasury, including:
- utility crypto assets (those which can only be redeemed for goods or services by the issuer);
- collectable crypto assets (i.e. digital representations of real-world collectable items);
- zero utility crypto assets (those which provide no promises, rights or other use case than the ability to transfer them via a network);
- membership crypto assets that allow access to communities or loyalty schemes;
- asset-backed crypto assets used as a store of value;
- algorithmic stable crypto assets – an asset which uses an algorithm to maintain a consistent value as opposed to necessarily being asset-backed. The perils of algorithmic stablecoins were highlighted in the multi-billion dollar crash of LUNA Terra earlier this year;
- crypto assets used for fundraising for not-for-profits, performing artists etc;
- governance assets with or without value accrual;
- crypto assets that replicate the functions of a financial product; and
- hybrid crypto assets that may perform multiple functions across a number of categories.
The challenge in undertaking a “token mapping” exercise is of course always in the detail and particularly, to avoid the temptation to classify assets as a hybrid token for ease of classification purposes without in-depth consideration of the rights and attributes attaching to any such token.
It has been indicated that a further public consultation paper will be released soon. Of course, if you would have a need for advice on token classification or related matters in the meantime, HopgoodGanim’s Digital Assets practice can assist.
1.Together with Stephen Jones (Assistant Treasurer and Minister for Financial Services) and Dr Andrew Leigh (Assistant Minister for Competition, Charities and Treasury).
2. Crypto asset secondary service providers: Licensing and custody requirements – Treasury Consultation Paper 21 March 2022.