In what’s been described as a “red-letter day” for the Australian crypto industry, the Senate released its third and final report on the state of blockchain regulation in the country, providing a roadmap for policymakers on how to best take advantage of the burgeoning industry. Headed by Senator Andrew Bragg, the Senate Select Committee on Australia as a Technology and Financial Center focused on improving Australia’s competitiveness in the global crypto industry.
“This will drive investment and jobs into Australia,” Bragg, a blockchain advocate, said in a statement. “We’ll be competitive with Singapore, the U.K. and the U.S.”
Including 12 recommendations, the report addresses the country’s regulatory approach to crypto and digital assets, the ongoing issue of “de-banking” of crypto businesses within the country and the policy environment of neo-banks. After delivering an earlier report in April, one industry watcher told Forkast.News she was impressed with the speed and scope of the report.
“What’s perhaps not necessarily appreciated outside of crypto is just how complex some of the ideas and concepts are,” said Caroline Bowler, CEO of digital asset exchange BTC Markets, who also sits on the board of Blockchain Australia. “What really impressed me and surpassed my expectation was the depth at which this report went to.”
Indeed, the report even made recommendations on decentralized autonomous organizations (DAOs), recommending the government establish a company structure for such organizations, with Bowler saying the inclusion of such elements is ambitious.
Roughly 18 months ago, BTC Markets was exploring the best avenues for growth, but many ideas often resulted in what Bowler described as frustration at the existing regulatory and licensing frameworks in the country. She therefore welcomed the report’s first recommendation for the Australian government to establish a market licensing regime for digital currency exchanges.
“Oftentimes we just kept on coming up against the same issue, which was that we couldn’t get access to the right kind of licensing or regulation because they were designed for traditional finance,” she said. “So, the fact that this report is specifically tailored to us and to the future, that’s fantastic. That’s specifically the kind of thing that I was looking for.”
Presently, a digital currency exchange does not require a license to operate within the country if it is not offering a financial product — which cryptocurrency is not considered. The main regulatory framework for such exchanges is they must be registered with the Australian Transaction Reports and Analysis Center (AUSTRAC).
Introducing a licensing regime is not welcomed by everyone, however; Australian managing director of digital asset exchange Kraken, Jonathon Miller, told Forkast.News while he’s encouraged the recommendations in the report are not too prescriptive and broadly supports them, he does have reservations.
“What I’m a little bit nervous about is the sense of urgency around a licensing regime and a custody regime for crypto, when we know that there is no fit-for-purpose regime that we can see in the existing regulatory environment,” he said. “In fact, I don’t yet believe there is a good working model offshore that we can lean on.”
Miller believes much of the existing regulatory framework in Australia around its anti-money laundering and counter-terrorism financing requirements is already adequate, and there is no need for burdensome licensing requirements. He points to Australia’s high level of crypto penetration as evidence of this; a recent report by Australian comparison site Finder.com found that 17.7% of people surveyed owned some form of cryptocurrency, well ahead of the global average of 11.4%.
“The evidence is in,” Miller said. “We have a great result for consumers and I don’t think we should be playing around too much with that. The risk is that exchanges will go offshore because licensing regimes can be very onerous, very costly, and those costs ultimately end up on the shoulders of the consumer.”
De-banking of crypto businesses
The issue of de-banking of crypto businesses has been a hot topic in Australia of late; while some of the larger banks have flatly rejected the practice takes place, the report lists numerous examples of crypto businesses of all sizes being repeatedly denied service by banks, sometimes with minimal notice or reason provided.
As reported recently by Forkast.News, one of those businesses, Canberra Bitcoin, recently settled with ANZ — one of the country’s “Big Four” banks — on charges of de-banking before the tribunal to hear the matter took place. A second tribunal to hear similar charges brought by company owner Allan Flynn against another major bank, Westpac, is currently being held.
Bragg has said he recognizes the challenges in addressing this issue. “We don’t tell banks who to bank but we will step in to provide policy certainty where it is lacking,” he said in a speech during Blockchain Australia Week in April. “This is the separation between the market and policy issues. Canberra [Australia’s capital city] doesn’t solve market issues. We don’t tell banks to supply finance to a particular project. We set a policy framework based on our governing philosophy.”
The report recommended the Australian Government develop clear processes for businesses that have been de-banked which should be anchored around the Australian Financial Complaints Authority.
As the name suggests, there is a significant reliance in Australia on the Big Four banks — ANZ, Westpac, Nab and the Commonwealth Bank — and they have been central to this issue of de-banking. Miller says that out of the 190 countries in which Kraken operates, it has strong banking relationships in all of them — Australia is the only one where de-banking is still part of the conversation.
“There’s just a lack of vision around the opportunity,” he said. “There have been some very supportive smaller banks in Australia who fully grasp the momentous opportunity and they’ve been really supportive … [but generally] the Australian banking sector here, I think, is missing a trick.”
Tax reporting obligations
Earlier this month the Australian Tax Office told the Committee it was concerned many crypto investors in the country were not aware of their tax reporting obligations. As it currently stands in the country it is considered a taxable event each time cryptocurrency is traded and is therefore subject to capital gains tax — not simply just the net gains or losses at the end of the financial year.
The committee recommends simplifying this process, however, streamlining the capital gains tax regime so that a taxable event is only triggered when digital asset transactions genuinely result in a clearly definable capital gain or loss. Miller welcomes this recommendation, calling the existing tax framework not fit for purpose, as cryptocurrency trades are often more sophisticated than simple transactions.
“[Often traders] are not buying and selling for the sake of profit,” Miller said. “What they’re doing is moving into other assets, to participate in, say, distributed apps. And yet they’re getting penalized without realizing it by the ATO. I think that’s wrong and I welcome a review.”
As policymakers around the world begin to grapple further with the reality of taking affirmative action on climate change, this can often put energy-intensive blockchain in the spotlight. Bitcoin in particular with its proof-of-work consensus mechanism is often criticized for this and is one of the central arguments used by opponents of the technology. While the debate about the availability and affordability of renewable versus non-renewable energy continues, the Committee makes the novel recommendation of offering a 10% tax break to companies that source 100% of their energy needs from renewable sources.
“It’s very forward-thinking,” Bowler said of the recommendation. “That’s really great to see that they’re trying to find different methods to stimulate that kind of activity.”