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What will Treasurer Frydenberg’s crypto reform plan look like?

·Finance reporter
·3-min read
Treasurer Josh Frydenberg speaks at a podium.
Treasurer Josh Frydenberg is planning a major cryptocurrency payments reform. (Source: Getty)

Federal Treasurer Josh Frydenberg has announced a reform plan for cryptocurrency and digital currency exchanges to shake up the payments system and put Australia at the forefront of new technology—but what will it actually look like?

Crypto 'not a fad'

Crypto has been receiving increasingly mainstream attention, particularly after the Commonwealth Bank became the first big bank to begin offering a platform to trade crypto.

Frydenberg is set to speak at the Australian-Israel Chamber of Commerce (AICC) on Wednesday, where he will say his plan includes the “most significant reforms” to the payments system in 25 years.

In early 2022, he plans to commence discussion on a licencing framework for digital currencies and has hopes of piloting a central bank digital currency (CBDC). The reforms will also strive to rectify the current problem of fintech debanking (when banks decline to provide a service).

Buy now, pay later also in sights

The reforms are thought to provide more oversight and enhanced power for the Treasurer to come up with rules, which the Federal Government says will enhance transparency in the BNPL market.

The Coalition further claims better fees and more competitive offerings for Australian consumers.

Crypto exchange 'fully supportive'

It might seem at odds to have a decentralised currency - that was created to exist outside government control - to be on board with regulation, but one cryptocurrency exchange spokesperson is excited for discussions around CBDCs.

Jonathon Miller, managing director of cryptocurrency exchange Kraken Australia, told Yahoo Finance he welcomed the news of the reform plan to provide greater clarity for Aussie investors and businesses holding crypto assets.

“It is positive to see the Government recognise the enormous opportunity for Australia to be a market leader in cryptocurrencies and fintech competition,” he said.

He is particularly supportive of developments that remove obstacles to improve efficiency and reduce costs, and especially those that place financial decision-making into the hands of the individual - a key ethos for crypto traders.

“However, we urge caution when developing licensing and custody frameworks for digital currency exchanges and custodians,” he warned.

Regulation must not go too far

Miller said the Government must recognise the existing anti-money-laundering/counter-terrorism-financing (AML/CTF) environment in Australia, which places an onus on businesses as the first line of defence to protect the financial system from criminal abuse.

“The existing AML/CTF regulatory environment in Australia has provided a sufficient framework for safe on-ramps and off-ramps of crypto, and encouraged the growth of strong local businesses and attracted international players to set up domestic footprints,” he said.

In other nations like Japan, strict regulations from April 2020 place crypto on par with mainstream finance companies, meaning they must be a registered Type I financial-instruments business and adhere to all the same regulatory requirements.

Furthermore, each individual token must be approved to be listed on one of the 31 FSA-registered exchanges. This can incur high costs, which could deter or drive exchanges to look elsewhere.

Miller cautioned Australia against going too far down the path Japan had taken, which resulted in costs passed onto customers.

“It’s critical that the Government consults with the industry so that best practise can be developed by looking at existing secure and trustworthy exchanges,” he said.

“The novel character of digital assets means there is no existing licensing regime that is appropriate.”

Although sounding promising, it’s worth noting a majority of the reform package is slated to be delivered in 2022, with the next federal election due by May 2022.

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