In a bold move to tighten regulation, Australia’s corporate watchdog, the Australian Securities and Investment Commission (ASIC), has released a consultation paper proposing sweeping changes to the country’s crypto industry. These new guidelines will make compliance with financial regulations non-negotiable for most crypto firms operating in Australia—marking a significant shift toward greater oversight of the digital asset space.
As of December 4, 2024, the proposed rules place many types of cryptocurrency and digital asset services firmly within the category of financial products, meaning that businesses involved in their trading or management will now be required to obtain an Australian Financial Services License (AFSL). While the move is seen as a step toward creating a safer, more transparent market, it has raised concerns that the compliance burden could drive smaller crypto firms overseas, potentially stifling innovation in the sector.
Let’s break down what these new guidelines mean for Australia’s crypto industry, the challenges they pose, and how the sector might respond.
The New Rules: Crypto Firms Must Get Licensed
Under Australia’s existing financial regulations, businesses offering financial services or dealing in financial products must obtain an AFSL to operate legally. This requirement extends to firms facilitating the trading of financial products, who may also need an Australian Market License (AML). With the latest guidance from ASIC, many crypto exchanges and firms involved in the digital asset ecosystem will now be required to secure one or both of these licenses to legally continue their operations.
ASIC’s proposed changes aim to bring greater clarity to the rapidly evolving crypto space. The regulator has stated that cryptocurrencies, including tokens, stablecoins, and some forms of digital asset services (such as staking and wrapped tokens), will now be classified as financial products. This means that businesses facilitating their trading, issuance, or management will be subject to the same regulatory scrutiny as traditional financial markets.
“This is a wake-up call,” said Kate Cooper, CEO of Zodia Custody, a crypto custodian backed by Standard Chartered. “Compliance is no longer optional. Firms will need to do a full audit of their operations, particularly in areas like custody and compliance management.”
The Compliance Costs: A Heavy Burden for Smaller Firms
While large crypto businesses may have the resources to navigate the new regulatory landscape, smaller players could face significant challenges. Obtaining an AFSL and maintaining compliance with ASIC’s guidelines requires considerable financial and operational investment. This could make Australia a less attractive market for new and emerging startups, who might instead opt to launch in jurisdictions with lighter regulatory burdens.
Liam Hennessy, a partner at Clyde & Co law firm, warned that the new rules could disproportionately impact smaller firms. “Bigger businesses are more likely to absorb the cost and complexity of these new regulations,” Hennessy explained. “But smaller businesses may struggle, and we could see a lot of innovators packing up and moving offshore.”
Joni Pirovich, a crypto lawyer, echoed these concerns in a LinkedIn post, arguing that the high compliance costs and licensing requirements could make launching in Australia as expensive—or more expensive—than doing so in a jurisdiction with less stringent regulations. “Australian innovators will likely be forced to go offshore,” she wrote. “The compliance hurdle is simply too high for many businesses to overcome.”
For startups like Block Earner, which was sued by ASIC for offering an unlicensed crypto-yield product in 2022, the new regulations present a mixed bag. While CEO Charlie Karaboga sees the clearer regulatory landscape as a positive step, he expressed concern that the high capital requirements for an AFSL—often in the millions—could spell trouble for smaller players. “Firms like us, with just 13 employees, simply can’t afford to hold those kinds of reserves,” Karaboga said.
A Silver Lining? Clarity for Crypto Operators
Despite the growing concerns, many in the crypto industry agree that one of the benefits of ASIC’s proposed guidelines is the much-needed clarity they bring to the market. For years, crypto firms in Australia have been operating in a regulatory grey area, unsure of how existing financial regulations applied to their activities. Now, with ASIC’s proposal, businesses have a clearer understanding of what is expected of them—though the cost of compliance may still be steep.
“This is a significant piece of regulatory guidance,” said Liam Hennessy. “Anything that provides more clarity to the market is a positive. The lack of clear rules has been a big concern for many firms, and now there’s finally some certainty about what’s required.”
The consultation paper also clarifies the scope of what constitutes a financial product under Australian law. ASIC has expanded the definition to include a wide range of digital assets such as stablecoins, native token staking services, and wrapped tokens. However, popular assets like Bitcoin, Ether, memecoins, and gaming-related NFTs may not fall under this expanded classification, potentially offering some relief to businesses dealing with those assets.
What’s Next for Australia’s Crypto Industry?
ASIC has opened a public consultation period to gather feedback on the proposed updates, which will remain open until February 28, 2025. After reviewing the feedback, the regulator is expected to finalize the guidelines in mid-2025. In the meantime, the crypto industry will be closely monitoring any changes to the proposed rules and adjusting their operations accordingly.
ASIC’s aim is to strike a balance between promoting innovation in the financial sector and ensuring robust consumer protection, market integrity, and competition. “A well-regulated financial system benefits everyone in the community,” said ASIC Commissioner Alan Kirkland, emphasizing the importance of consumer trust and confidence in the market.
While the increased regulation may raise compliance costs for crypto firms, it could also encourage more responsible practices in the sector—especially in terms of transparency, security, and consumer protection. For investors, the greater regulatory certainty may lead to a more stable and trustworthy environment for trading digital assets.
However, for startups and smaller firms, these changes could present a significant hurdle to entering or scaling in the Australian market. The fear is that without adequate support or flexibility in the new regulatory framework, Australia could lose its position as a hub for crypto innovation, pushing many businesses to seek more favorable conditions overseas.
A Tipping Point for Crypto Regulation?
Australia’s proposed crypto licensing rules are a bold step in bringing digital assets under the umbrella of traditional financial regulation. As the sector matures, greater oversight is likely to become the norm across many countries—but the way regulators handle the transition will be crucial. Will the cost of compliance stifle innovation, or will a more regulated approach foster long-term growth and stability?
For now, it’s clear that Australia’s crypto industry is at a crossroads. The outcome of this regulatory shift will determine how competitive the country remains in the global digital asset space and whether smaller, innovative players can continue to thrive under the new rules. The next few months will be critical as the consultation period unfolds and the final regulations take shape.
