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On February 3, Australia’s Treasury released a long-awaited token mapping designed to form the basis of future regulatory efforts on the cryptocurrency. The Australian government says the exercise is designed to enable “an evidence-based, consumer-aware and innovation-friendly approach to policy development”.
The mapping creates two main categories of tokens: intermediate token systems and public token systems. Intermediary token systems refer to categories of cryptoassets and related activities commonly described as centralized finance (CeFi) and where many aspects of traditional financial services regulation may apply.
For example, service providers of cryptoassets – such as most exchanges – and certain innovations – such as fiat-backed stablecoins and tokenized real assets – are likely to fall within the scope of existing financial services regulation aimed at consumer protection and owner redemption rights because they mostly imitate other types of financial activities that are already regulated.
Public token systems, however, are those typically found in the decentralized finance (DeFi) ecosystem, where traditional intermediaries may not be present and activity is executed using public smart contracts.
While systems based on smart contracts are designed to remove counterparty risks, other threats may be present, such as those related to errors in their code or flaws in their economic mechanism that may allow them to be exploited to the detriment of other market participants. In the paper, the Ministry of Finance acknowledges that these DeFi innovations may present challenges to existing regulatory frameworks designed for intermediary environments and may require new approaches.
The Treasury invited the public to comment on the concepts outlined in the token mapping document, and the consultation runs until March 3.
In a separate statement, Australian Treasurer Jim Chalmers said the token mapping framework was part of an effort “to ensure that regulation of crypto assets protects consumers and positions our economy to take advantage of new digital products and services.”
Chalmers’ comments suggest that Prime Minister Anthony Albanese’s government sees token mapping as part of a broader effort to establish safer and more stable crypto markets. Along with the token mapping initiative, the government plans to step up enforcement measures regarding cryptocurrency through the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).
The statement also stated that the government will reform cryptocurrency custody standards to ensure the safekeeping of users’ assets. This is a growing priority that other jurisdictions – such as New York State – have emphasized following the collapse of the FTX exchange.
These efforts – while only the beginning of the process for the Australian Government – ​​represent an important starting point. To date, Australia’s regulatory regime for cryptocurrencies has been limited to an anti-money laundering and countering the financing of terrorism (AML/CFT) regime, with occasional ad-hoc enforcement activity by ASIC and the ACCC in response to breaches of securities rules laws and consumer protection.
These new efforts are designed to expand Australia’s regulatory approach to crypto in a more coordinated way, which will help not only establish clearer guardrails for crypto innovators while protecting consumers, but also help Australia align its future regulatory frameworks with similar efforts in other countries. . parts of the world.
To learn more about the country’s crypto regulatory framework, see our guide to Australia.
UK publishes consultation on future regulatory framework
Like Australia, the UK took important steps towards a more robust crypto regulatory framework last week. On February 1, HM Treasury (HMT) published a wide-ranging consultation, which runs until April 30, setting out a proposed approach to placing cryptoasset services within a regulatory framework for market conduct, consumer protection and other related measures.
The changes, which are set as amendments to the Financial Services and Markets Act, will require crypto-asset service providers – already within the UK’s AML/CFT requirements – to obtain additional approvals and implement more extensive compliance requirements. related to ensuring the correctness and security of their platforms. Importantly, as part of the proposed measures introduced on February 1, the HMT has reversed course from earlier strict proposals regarding how approved crypto companies could advertise their products, now coming up with a more moderate proposal that the industry considers more feasible.
In Elliptic Connect, Elliptic’s Senior Policy Advisor Mark Aruliah breaks down the full range of proposals, and also zooms in on the HMT reversal on financial promotions. As Mark also told CoinDesk last week, the measures also offer an opportunity for the UK to establish a clear distinction between its approach to cryptocurrency and that taken by the European Union in its Markets and Crypto-Assets (MiCA) regulation, which is treated as an important international benchmark.
Fed warns member banks about crypto activities
US banking supervisors remain concerned about the impact crypto market volatility could have on the broader banking sector. On January 27, the Federal Reserve Board issued a policy statement indicating that it intended to invoke its authority to prevent state banks from engaging in certain cryptocurrency-related activities, such as holding cryptocurrencies as principal, and requiring them to obtain approval for participation in certain activities. activities, such as issuing stablecoins.
The Fed’s move is not surprising. As we specifically noted, we expect banking regulators to focus intense scrutiny on banks’ exposure to cryptocurrencies this year and require them to manage any such exposure. However, as we have so far, banks should be careful not to turn a blind eye to the crypto risks they may face, and should instead develop robust approaches to risk management.
India maintains strict cryptocurrency takeover rules and advocates for further future regulation
The Indian government has carried forward the 30% capital gains tax on digital assets it introduced last year in 2023. The high tax rate is seen by some as an attempt to drive away crypto activity, which the Indian government has long been skeptical of. The government is also introducing tougher penalties for cryptocurrency-related tax evasion.
The moves around taxation are just one front on which the Indian government is taking a strict and scrutinizing approach to cryptocurrencies. On February 6, India’s Economic Affairs Secretary Ajay Seth indicated that the country plans to introduce further crypto regulations this year, and will also push for greater coordination and standardization of crypto regulation among G20 members, where India currently holds the rotating presidency.
To learn more about the country’s regulatory and legal framework for cryptocurrencies, see our guide to India.
Hong Kong will set the path for issuing stablecoins
In another sign of a more open relationship with cryptocurrency, on January 31st the Hong Kong Monetary Authority (HKMA) released the findings of a consultation on crypto and stablecoins it held last year. The regulator plans to require issuers of fiat-backed stablecoins to obtain a license and ensure an adequate reserve of their token – a measure that will bring it in line with similar standards being introduced elsewhere, such as similar proposed measures in the UK and the EU. Custody of stablecoins will also be subject to regulatory oversight.
Stablecoin issuers will also be subject to comprehensive anti-money laundering and terrorist financing and consumer protection requirements, and will also be subject to regular audit and disclosure requirements. The move is important for Hong Kong, which has recently shown a willingness to reconsider its previously hostile approach to the retail use of cryptoassets. However, Hong Kong’s proposals also indicate that it plans to ban the offering of algorithmic stablecoins, in response to the collapse of the Terra/UST stablecoin last year.
To learn more about Hong Kong’s regulatory and legal framework for cryptocurrencies, see our Hong Kong guide.
Malta imposes fines on crypto businesses for non-compliance
On January 31, Malta’s Financial Intelligence Analysis Unit (FIAU) fined a crypto company for the first time for breaching compliance requirements. According to notices ( here and here ) issued by the FIAU, the Malta-based crypto exchange Bequant did not have sufficient compliance controls in place and did not perform an adequate risk assessment of its operations.
The FIAU’s findings also suggest that Bequant failed to conduct adequate customer due diligence and continuous monitoring of customer activity, including failing to conduct effective transaction monitoring. As a result of the lack of compliance, the FIAU imposed fines totaling approximately €560,000 ($600,000) on Bequant.
To learn more about Malta’s approach to crypto regulation, see our Malta guide.
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