Australia’s financial and taxation systems should be transformed to harness the growing potential of crypto-assets, a Senate committee has found, offering a suite of recommendations it hopes will secure the nation’s position in a global market worth trillions of dollars.
In its final report, delivered Thursday, the bipartisan Senate Select Committee on Financial Technology and Regulatory Technology found Australia faces “enormous” economic opportunities if it creates a “forward-leaning environment for new and emerging digital asset products.”
Some 17% of Australians currently own some form of cryptocurrency, the Committee said, making the nation a world leader on crypto-asset ownership on a per capita basis.
However, rapid developments in blockchain technology and how cryptocurrencies are used have left Australia on the back foot, with policy settings out of step with the ballooning market.
The Committee heard that Australian-based digital currency exchanges have recently decamped to the UK and Singapore, respectively, due to lacking regulatory frameworks.
Chief among the report’s recommendations is the creation of a new government-backed licensing regime for digital currency exchanges.
This new form of license would enact capital adequacy, auditing and responsible person tests on digital currency exchanges.
Boosting this form of regulation will allow exchanges to “demonstrate a high level of commitment to consumer protection and operational integrity” while weeding out “shoddy operators”.
“Bespoke” custodial and depository guidance would protect customers while addressing the fundamental quirks of handling digital and largely decentralised assets.
It is difficult to adapt current regulatory structures to enterprises with decentralised ownership structures, the Committee found, calling on the federal government to “establish a new Decentralised Autonomous Organisation company structure.”
The Committee found such a framework would help exchanges, too, by giving certainty to growing enterprises pushing the boundaries of existing regulations.
As some financial institutions toy with crypto cards enabling over-the-counter payments, the report called for a run-down of what is, and what is not, a capital gains event, lest consumers face complex tax liabilities with every new crypto-backed purchase.
“This may require the creation of a new CGT asset or event class that enables specific concessions or exemptions to be applied,” the report found.
Demonstrating just how quickly the sector can evolve, the Committee suggested the Australian Taxation Office should release new advice on crypto-asset capital gains events every six months.
Even cryptocurrency ‘miners’, whose computer processors draw enormous amounts of energy to keep the decentralised blockchain systems alive, should be considered under any policy rejig, the Committee found.
Those ‘miners’ should face a company tax discount of ten percent — if they source their power renewably, the report said.
Big-picture thinking was also encouraged by the suggestion that “the Treasury lead a policy review of the viability of a retail Central Bank Digital Currency in Australia,” a move which would bring a fully digital fiat currency closer to reality in Australia.
Underpinning many of these recommendations was a simpler suggestion: that Australian regulators consider “token mapping” to delineate the differences between the growing classes of crypto-assets, making further policy positions easier to implement.
Traditional financing was brought into the fray, too, with the Committee calling to “increase certainty and transparency around de-banking”, where banks withdraw their support for local fin-tech companies over fears of regulatory or legal risk.
Liberal Senator Andrew Bragg, who chaired the Committee, said Australia risks losing talent and capital should regulators not catch up.
“We must move quickly to stop the brain & capital drain,” he tweeted after the report was tabled.
Blockchain Australia, whose submissions to the Committee informed key aspects of its recommendations, called the report a “watershed” moment for Australia’s digital assets sector.
“We can look to the future knowing that recommendations such as the recognition of [decentralised autonomous organisation] structures will send a very strong signal to the world that we are ready to lead this conversation,” the group said.
“Licensing, custodial services and the taxation implications have all been elevated in this report. The work begins to put meaning to those words and in the development of an inclusive and progressive regulatory framework.”
The onus for change now rests on Australia’s regulators, but crypto-enthusiasts may come to consider 20 October an auspicious day: not only did the Committee imagine Australia at the forefront of global blockchain markets, but the price of Bitcoin nudged to all-time highs.