Australian Regulators Weekly Wrap — Monday, 6 February 2023

6 February 2023
Liam Hennessy, Partner, Brisbane

Keeping on top of the latest financial services regulatory & compliance trends?

Investing time in your professional development within a rapidly changing financial services industry is challenging. To meet that challenge, the Australian Regulators Weekly Wrap is designed to keep you at forefront of your practice by quickly setting out the top 5 developments from the past week, analysis and practical considerations for the future.

  1. Token mapping (Treasury): The Australian government released the long-awaited token mapping consultation paper on Friday. Token mapping is the process of identifying the key activities and functions of products in the crypto ecosystem and mapping them against existing regulatory frameworks. Responses are due by 3 March, and I’d encourage everyone with an interest in the blockchain space to respond! It is so consequential, as the purpose of this paper is to ensure consistency in regulating activities (i.e. be technology neutral), facilitate existing policy goals (i.e. not require the wholesale creation and adoption of a standalone policy that may overlap or conflict with existing policy), and allow responsible actors to innovate with appropriate regulatory oversight. Thereafter, late this year, the Government will release a (separate) consultation paper proposing a licensing and custody framework for crypto asset service providers in mid-2023[as] after token mapping, licensing and custody reforms are the logical next step for crypto reforms in Australia. We will be publishing our submission on the consultation paper, which is an excellent and highly practical piece of work by the Treasury. 2023 is going to be a banner year for digital assets!
  2. UK digital assets reform (UK): The UK has set out a new regulatory regime for the crypto industry. The new rules would cover crypto assets and their acceptance onto a trading platform, making a public offer, undertaking payment transactions or remittances, arranging deals, operating a platform, custody, and mining transactions, or – interestingly – operating a node on blockchain. The Treasury also promised a ‘world-first regime for crypto lending’. The rules will cover cryptocurrency firms in Britain or those providing services to the UK. Firms would need a licence, along with minimum capital and liquidity requirements. The UK has made no secret of its plans to be a crypto hub for the world, and this is a major step in that direction. We need to give them some stiff competition!
  3. Crypto reform (Treasury): I attended a roundtable with Assistant Minister Stephen Jones earlier in the week and asked him about digital assets. In short, the token mapping exercise will inform the licensing and capital requirements approach, and there is an understanding that not all tokens can and should be regulated. Interestingly, the Assistant Treasurer said that his view is we need to regulate the useof the technology rather than the technology itselfthe same applies to ChatGPT, which was also arose in that same discussion. Naturally, I have views on this one, including whether it is somewhat circular logic – but I will save them for the consultation on the token mapping paper!
  4. FAR (Treasury): In the above-mentioned meeting, FAR also came up. Assistant Minister Stephen Jones said he is against personal fines, he won’t decouple FAR from CSLR (which the Libs want him to do) and, FAR / CSLR will be passed first quarter, which commences this Monday. Fines are a terrible idea and we need Labor to get it right the second time around. A lot is counting on it.
  5. ASIC restructure (ASIC): There will be a restructure of ASIC in February 2023 designed to: streamline enforcement, cut bureaucracy and deliver faster decision-making. The overhaul will cut the number of divisions, which are currently broken into multiple supervisory, enforcement and operations groups. The regulator will amend its operations – focusing primarily on financial services and wealth, and its associated enforcement group, along with some changes to markets and markets enforcement. It coincides with a large enforcement agenda – both in quantity and (notably) novel quality which appears to have at least partially been the reason behind some high profile ASIC departures, and is covered in more detail in our CPD on the top regulatory cases of 2022 last week (please get in touch with me if you need the recording / CPD points). It also occurs against the backdrop of a Senate inquiry into ASIC’s effectiveness as an enforcement regulator, which reports in 2024.

Thought for the future: I have always been a firm believer in Braithwaite’s Pyramid in terms of regulatory enforcement theory. In essence, a regulator should follow a well-designed roadmap from less interventionist and cheaper engagement options through to coercive, costly and highly interventionist options such as litigation. We will swing back to this approach, I believe – but not for a while to come it appears.

Published on Australian Regulators Weekly Wrap

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Authored by:

Liam Hennessy, Partner

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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