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Senate committee make recommendations to revamp digital currency in Australia

The Senate committee in charge of reviewing fintech has revealed an ambitious strategy to manage Australia’s global digital economy. The committee’s final report has been released, and it includes a dozen suggestions for how digital assets should be regulated. 

If adopted, the twelve recommendations in the Australia as a Technology and Financial Centre (ATFC) committee’s final report might further attract blockchain developers and entrepreneurs to the country by providing regulatory clarity and certainty. 

One of the proposals in the final report of the Senate Select Committee is for the federal government to issue a market licence for digital currency exchangers (DCE). According to Associate Professor Chris Berg, co-founder of RMIT University’s Blockchain Innovation Hub, Parliament should adopt them as soon as possible. 

The suggestions in this report, according to Berg, provide the cryptocurrency and blockchain sector with the clarity that is desperately required to ensure a successful future digital economy.

“We have an opportunity to take a global leadership position and compete with countries such as the United States, Singapore and Switzerland in this incredibly vibrant sector,” he said.

“It is good to see our recommendations to change how cryptocurrency is taxed and how blockchain-based decentralised autonomous organisations (DAOs) are regulated being taken up by the Australian Senate,” said Berg.

Additionally, the committee has recommended changes to taxation laws, such as giving companies that invest in digital asset mining activities a 10 per cent company tax break if they use renewable energy for these activities.

Dr Elizabeth Morton, a Research Fellow of the RMIT Blockchain Innovation Hub, particularly welcomed the committee’s recommendation for targeted reform of the capital gains taxation regime as it applies to cryptocurrency.

“We see an urgent need to ensure the tax system achieves balance in simplification, reflective of a digitally driven economy, encouraging tax compliance and protecting tax revenues from the risk of leakage,” she said. “Reform will offer clarity for taxpayers and confidence in the tax system as a whole.”

List of recommendations

The committee recommended that the government: 

1.    Established market licencing scheme for digital currency exchanges, including capital adequacy, auditing, and responsible person tests, as part of the Treasury portfolio.

2.    Established a custody or depository regime for digital assets with minimum standards under the Treasury portfolio.

3.     Through the Treasury and with input from other relevant regulators and experts, conducted a token mapping exercise to determine the best way to characterise the various types of digital asset tokens in Australia. 

4.    Established a new Decentralised Autonomous Organisation company structure. 

5.     The Anti-Money Laundering and Counter- Terrorism Financing regulations be clarified to ensure they are fit for purpose, do not undermine innovation and give consideration to the driver of the Financial Action Task Force ‘travel rule’. 

6.     The Capital Gains Tax (CGT) regime be amended so that digital asset transactions only create a CGT event when they genuinely result in a clearly definable capital gain or loss. 

7.     Amended relevant legislation so that businesses undertaking digital asset ‘mining’ and related activities in Australia receive a company tax discount of 10 percent if they source their own renewable energy for these activities. 

8.     The Treasury led a policy review of the viability of a retail Central Bank Digital Currency in Australia. 

9.     The Australian Government, through the Council of Financial Regulators, enacted the recommendation from the 2019 ACCC inquiry into the supply of foreign currency conversion services in Australia that a scheme to address the due diligence requirements of banks be put in place, and that this occurs by June 2022. 

10.  In order to increase certainty and transparency around de-banking, the Australian Government developed a clear process for businesses that have been debunked. This should be anchored around the Australian Financial Complaints Authority which services licensed entities. 

11.  In accordance with the findings of Mr Scott Farrell’s recent Payments system review, common access requirements for the New Payments Platform should be developed by the Reserve Bank of Australia, in order to reduce the reliance of payments businesses on the major banks for the provision of banking services. 

12.  Established a Global Markets Incentive to replace the Offshore Banking Unit regime by the end of 2022. 

Present scenario

The majority of crypto assets now available to Australian retail investors lie outside of ASIC’s regulatory perimeter, which means that companies offering these products don’t need to obtain an AFS licence or a market licence.

Moreover, crypto startups that have been unable to obtain banking services in Australia will be able to dispute debanking decisions against financial institutions at the Australian Financial Complaints Authority, and banks will be required to undertake due diligence rather than imposing blanket restrictions on the entire sector.

The committee identified several issues as critical to Australia’s technology, finance, and digital asset industries’ competitiveness, including cryptocurrency and digital asset regulation, issues relating to Australian FinTechs and other companies’ de-banking, the policy environment for neo-banks in Australia, and options to replace the Offshore Banking Unit. 

Labor Senators noted the increasing use of digital assets among Australian investors and consumers, particularly among younger Australians. Furthermore, senators expressed concern about the prevalence of scams based on crypto asset product offerings. 

The ASIC reported in its submission that frauds using crypto-assets are becoming more prevalent, with a much larger number of crypto-related scam reports received this year compared to previous years.

Swyftx, a Brisbane-based cryptocurrency broker with over 100 employees in Australia summarised the need for improved regulation of digital assets. “Australian consumers are demanding access to the digital asset industry – it should be the government’s aim to facilitate this access under a regulatory regime that balances competing interests,” the broker was quoted in the report.

The broker added that bringing digital assets inside a tailored and sensible regulatory perimeter is a far better solution than forcing consumers to operate outside of it with unregulated, foreign providers.

“In addition, Australia’s entrepreneurs have leapt to the forefront of the global development of blockchain technology and associated crypto-asset fields, and are leaders in many areas.

“This technological leadership can translate into high-skilled jobs and an area for growth-oriented investment, if the right balance is struck by the government in approaching regulation.”

RMIT Blockchain Innovation Hub Research Fellow, Dr Aaron Lane said the Senate Committee’s recommendation to establish a new Decentralised Autonomous Organisation company structure, if legislated, will be the most significant reform to corporate law in two decades.

“Blockchain and cryptocurrency is not just about providing new types of financial products – this technology is the infrastructure for new ways of governing economic exchange,” Lane said.

“Providing DAO members with the option of a limited liability company structure will encourage talent and investment in Australia.”

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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