Govt announces digital assets reforms

The Federal Government will consult on plans for a retail Central Bank Digital Currency in Australia, along with reforming regulations around cryptocurrency, digital assets and buy now/pay later.

In an address to Australia-Israel Chamber of Commerce announcing the plan, Treasurer Josh Frydenberg said COVID-19 had accelerated and changed the way Australians and businesses engaged with digital technologies.

“Many new and innovative technologies are emerging throughout the economy, impacting every part of our lives,” Frydenberg said.

“Nowhere is this digital disruption playing out faster than in the payments and crypto-asset sectors. Cheques are on the way out.

“In 1980, cheques were used in 85% of non-cash payments. By 1995, cheques had fallen to 38% of non-cash payments. And today, cheque use has fallen to around 0.2% of non-cash payments. The use of cash is also declining.”

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In relation to payments, by mid-2022 the Government aimed to have:

• Set out a strategic longer-term plan for the payments system, developed with industry and reviewed annually;
• Settled the details of additional powers for the Treasurer to set payment system policy; and
• Determined the changes necessary to modernise payments system legislation to accommodate new and emerging payment systems, including consideration of BNPL and digital wallets.

In relation to crypto, by mid-2022 the Government aimed to:

• Completed consultation on the establishment of a licencing framework for Digital Currency Exchanges to provide greater confidence in the trading of crypto assets;
• Finalised consultation on a custody or depository regime for businesses that hold crypto assets on behalf of consumers so that investors have greater confidence in the safe keeping of these assets; and
• Received advice from the Council of Financial Regulators, working with other relevant agencies, on the underlying causes and policy responses to the complex issue of de-banking.

By end-2022 the Government aimed to:

• Settled the framework to replace the current one-size-fits-all payment licensing arrangements with a functionally based framework adopting graduated, risk-based regulatory requirements;
• Received a report from the Board of Taxation on an appropriate framework for the taxation of digital transactions and assets;
• Undertaken a mapping exercise of existing crypto currencies and tokens to better inform consumers and others of the risks and benefits that arise; and
• Examined the potential of so-called Decentralised Autonomous Organisations (DAOs) and how they can be incorporated into Australia’s legal and financial regulatory frameworks.

Frydenberg noted cash use had fallen from around two-thirds of consumer payments a decade or so ago to less than a third currently.

“About 55 million non-cash payments, worth about $650 billion, are made in Australia every day,” Frydenberg said.

“Digital wallets, buy now/pay later and cryptocurrency are fast becoming the new norm. Almost half of Australians now make payments using their mobile phone. There are more than 5 million active buy now/pay later customer accounts.”

According to the Treasurer, the global crypto-asset market was worth more than USD $2 trillion ($2.8 trillion), with around 220 million participants globally.

“More than 800,000 Australians have transacted digital assets in the last three years, with a 63% increase this year compared with 2020,” Frydenberg said.

“These trends will only accelerate and the uses for these technologies will only expand. Despite this disruption, the regulatory framework governing the payments system has remained largely unchanged over the last 25 years.”

Bragg to play pivotal role

Frydenberg would work closely with Senator Andrew Bragg, who chaired the Senate Select Committee on Australia as a Technology and Financial Centre which released the report to Government on the regulation of digital assets.

Bragg said Australia would become a world-leading crypto hub under the Treasurer’s plan and consumers would also benefit from new consumer protection rules. 

“The world is watching Australia which is now setting the global standard for crypto, payments and digital wallet reform,” Bragg said.

“These are key micro economic reforms which will drive more choice and lower prices for Australians. 

“The Australian Government, not Silicon Valley, or Shenzhen or the RBA should run Australia’s payments policy. Now we are back in control of payments policy. 

“I am very pleased that both the recommendations from the Senate Inquiry into cryptocurrency and the Farrell Review of payments have been adopted.”

Reforms welcomed

Caroline Bowler, BTC Markets chief executive, was encouraged by the “ambitious scope” of the reforms and the specific timeline which had been absent in the past.

"Treasurer Josh Frydenberg's announcement today is deemed as the biggest shake-up of the nation’s payments systems since the 1990s, and a major step forward to upgrade Australia’s one-size-fits-all regulatory framework in real-time,” Bowler said.

“At BTC Markets, we have been calling for regulatory oversight of the domestic digital assets market ever since we saw a renewed surge in demand for Bitcoin and other cryptocurrencies.   

“It's great to see that the gaps in Australian regulation relating to digital financial products and the exchanges who support them are being finally addressed at the highest level of authority, and the Coalition Government is not shying away from the big issues surrounding crypto, payments and de-banking.”