Key takeaways
- Australia’s Financial Service (AFS) presently extends to digital assets categorized as financial products.
- Discover the objectives and delve into understanding how Australian regulation applies to digital asset platforms.
- A primary goal is to harmonize Australia’s digital asset regulatory framework with global standards.
Australia has now joined the world of asset tokenization by successfully publishing a consultant paper on regulations for digital asset platforms. This regulatory framework regulates digital asset platforms under the financial services law. This article will be a guide in explaining the current crypto asset tokenization regulations in Australia.
Australia’s Asset Tokenization Regulation
Australian Securities and Investments Commission (ASIC): Responsible for looking over financial products and services, which includes tokenized assets like shares and bonds. ASIC regulations are predominant for financial goodness and consumer protection.
Australian Competition and Consumer Commission (ACCC): The association’s essential objective is to shield each customer from possible dangers because of hazy or manipulative promoting rehearses.
Anti-Money Laundering and Counter-Terrorism Finance (AML/CTF) Regime: It goes about as a well-being measure against criminal tasks like tax avoidance through tokenization. To reinforce your trade, it is fundamental to make Know Your Customer (KYC) and Hostile to Anti-Money Laundering (AML) rules obligatory for token brokers.
What are the Views of the Australian Regulation for Crypto?
Joe Longo, the chair of the Australian Securities and Investment Commission (ASIC), attended the summit and noted that:
- Cryptocurrency must adhere to the same rigorous standards as traditional industries. Utilizing new and innovative technologies does not exempt service providers from regulatory obligations.
- Cryptocurrency operates on unregulated trust, necessitating regulation to mitigate potential consumer harm. Effective regulation must encompass enforcement measures.
- Investing in crypto-assets still carries inherent risks, with purchasing decisions remaining largely speculative.
Key Objectives of Australia’s Digital Asset Regulatory Framework
Asset holding as a regulatory anchor point
The proposals outline that holding digital assets will be regulated, with minimum activity standards enforced. Under this framework, each digital asset facility will be considered an asset-holding agreement. It will rely on broad concepts of ‘control’ to determine regulatory inclusion, such as entities capable of directly exercising, coordinating, or directing control over assets.
Financial services licensing
The proposed framework mandates that a specific asset-holding arrangement be recognized as a financial product. This necessitates that platform providers and intermediaries offering financial services for digital asset facilities hold an AFSL (Australian Financial Service License).
Financialized functions
The government has implemented a regime distinguishing between ‘financialized functions’ and ‘non-financialized functions’ to encompass activities unrelated to financial products.
Financial tokens
- Token trading – Token trading involves facilitating the exchange of platform entitlements among account holders.
- Token staking – Entails facilitating an account holder’s involvement in validating transactions on a public network.
- Asset tokenization – Facilitates the creation and exchange of platform entitlements backed by tangible and intangible non-financial product assets.
- Funding tokenization – Facilitates the sale of entitlements to raise funds for the development of ‘non-financial’ products and services.
Non-financial tokens
- Tokens indicating affiliation with a group or endorsement of a cause.
- Tokens are exchangeable for non-financial services or tangible goods.
- Tokens granting access to a physical venue or event.
- Tokens are employed to manage the equilibrium of a limited resource’s supply and demand.
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What are the Benefits of Tokenization?
Safe for everyone
Well-defined regulations provide heightened security for both investors and businesses, fostering trust and bolstering confidence in the market.
Easier for business
Under Australia’s crypto framework, every startup will have clear guidelines on required actions to simplify the process for businesses to initiate innovative tokenization projects.
Increased investors
With enhanced safety measures, a larger pool of individuals is inclined to invest in tokenized assets, thereby stimulating market growth and fostering new opportunities.
Reduced intermediaries and compliance cost
Transactions while trading the tokens can involve up to 12 intermediaries, which comprise almost 5-7 percent of the average cost of the asset token. This regulatory framework will help reduce transactions by helping investors.
Steps to Asset Tokenization for Australian Businesses
Step 1: Defining goals and regulations
The first step is to identify your objectives clearly including funding, liquidity, and more. It is important to understand relevant regulations, such as ASIC guidelines and AML/CTF requirements.
Step 2: Choose the right technology stack
Look for the best blockchain network and other technology stacks that are compatible with Australian regulations. Consider some factors such as security, cost, and transaction speed.
Step 3: Seek expert guidance
Collaborate with experts in legal, financial, and blockchain technology to navigate compliance requirements and ensure seamless implementation.
Step 4: Develop a token distribution strategy
Forge partnerships with experts in legal, finance, and blockchain technology to navigate regulatory compliance and facilitate seamless implementation.
Step 5: Engage stakeholders and educate
Establish trust with potential crypto investors and partners through effective communication and educate them about the advantages and challenges associated with the venture.
Aiming for Australia’s International Alignment
A consultation paper by regulation tomorrow says that the governments of the EU, UK, Canada, Hong Kong, and Singapore have the intention to align with Australia’s regulation for digital asset platforms. Hong Kong’s VASP regime came into effect in 2023 of June. In Singapore, specific crypto-related activities fall under licensable categories outlined in payment services legislation. These include dealing activities and operating digital payment token exchanges, potentially also falling under e-money regulations. Both jurisdictions are currently releasing proposals regarding the regulation of stablecoins.
Over a year ago, AFSL proposed a separate license regime for ‘crypto asset secondary service provider’. The current proposal changes aim to simplify the existing system by eliminating the complexity of managing two separate licensing regimes simultaneously. However, adopting a ‘one size fits all’ approach also entails certain risks that need to be considered.
Bottom Line
Australia’s regulation of digital assets has made a significant step towards creating a secure environment for digital assets. While the proposed framework may appear overly comprehensive, Australia is actively acknowledging the potential risks and endeavoring to establish digital asset regulations tailored to the specific needs of the industry. This approach aims to strike a harmonious balance between mitigating risks, safeguarding consumers, and fostering innovation.
Blockchain App Factory is an ideal place for startups and investors in asset tokenization. We have an excellent record of success around the globe. If you dream of making a tokenized asset for yourself, get your call with us!
