Why the draft crypto legislation is good news for advisers

Cryptocurrency is currently largely unregulated as an investment class in Australia. This regulatory gap not only restricts access for millions of Australians who want to invest, but it also goes against the core value proposition of a financial adviser in providing holistic support to their clients.

Almost one in three Australians now hold cryptocurrency in their portfolios, but the vast majority are doing so without the benefit of professional advice as current regulations prohibit advisers from recommending or facilitating cryptocurrency investments. This leaves a significant portion of the population, especially those who rely on advisers for support, unable to participate in this growing asset class.

This blind spot is not the fault of financial advisers, but of the regulatory frameworks, processes and guidelines that they work under in the Australian financial services industry. The federal government has now introduced draft legislation for public consultation, a pragmatic step forward for the industry in Australia.

Regulation: The key to unlocking access and confidence

Fit-for-purpose regulation in Australia is the key to unlocking broader access, investor confidence and clarity. It provides guardrails for industry players, protects consumers and instils confidence in both retail and institutional investors. Clear rules will allow advisers to discuss cryptocurrency allocations with their clients and institutional investors, including superannuation funds, and instil confidence to pull the trigger on allocating capital.

Clear regulation will allow financial advisers to support clients who want exposure to digital assets, rather than having their hands tied. As the asset class continues to increase its presence within typical asset portfolios, regulation will ensure a holistic approach to financial advice by allowing advisers to assess their clients’ portfolios as a whole.

Globally, there has been a clear shift in momentum this year for the sector. The US is leading the charge, with a flurry of initial public offering activity already this year, the ability for Individual Retirement Account savings to include cryptocurrency allocations, widespread uptake of bitcoin and Ethereum exchange-traded funds and a framework for stablecoin requirements.

The release of Treasury’s draft digital asset legislation is a positive step towards allowing Australia to become an innovator and powerhouse in the global cryptocurrency market. By leveraging the established AFSL regime, the legislation ensures a robust regulatory environment that protects consumers, without placing unnecessary red tape on market operators, something that Crypto.com has been advocating for throughout the year.

Australia’s superannuation system is one of the largest globally, yet its reputation for conservatism risks leaving members behind as other markets evolve. Institutional investors are increasingly recognising cryptocurrency as a valid slice of the alternatives bucket, akin to infrastructure or private equity. AMP’s recent move to include cryptocurrency within its alternatives exposure signals a shift and we expect widespread adoption to increase as the industry receives regulatory clarity.

This regulation will provide the frameworks and certainty needed for super funds and other institutional investors to operate confidently in the cryptocurrency space, which could better position Australia as a global leader in the industry. As this plays out, we can expect to see more businesses setting up shop in Australia, which will support our local economy, create jobs and position us well to create the next tranche of cryptocurrency innovations locally. The more this process is sped up, the more we can expect to realise the benefits both for individual investors and the country as a whole.

Politicians push back on ASIC

The government’s decision to leverage the existing AFSL regime, rather than introducing a requirement for businesses to hold a market operating licence as previously proposed by ASIC, demonstrates a clear understanding of the sector’s needs. This approach is more efficient, building on established regulatory infrastructure and expertise, while avoiding unnecessary complexity and cost. Requiring firms to hold a market operating licence would have stifled innovation and driven firms offshore and away from the Australian market.

The draft legislation, unveiled by Assistant Treasurer Daniel Mulino, proposes to formally introduce “digital asset platforms” and “tokenised custody platforms” as financial products under the Corporations Act, bringing them under ASIC’s oversight. We see this a positive policy, as the greater level of oversight will create accountability for firms operating in the Australian market, with significant penalties for non-compliance. Importantly, smaller platforms with limited activity will be exempt, ensuring that the regulatory burden is proportionate and does not stifle competition or innovation.

This approach not only supports reputable operators but also enhances consumer protections, fostering sustainable, long-term growth for the industry. By leveraging tried-and-tested regulatory measures from overseas, such as the UK’s FCA principles and Europe’s MiCA regime, the framework ensures that digital assets are integrated into portfolios with the same oversight and protection as traditional financial products. This provides advisers, fund managers and institutional investors with greater confidence to invest, which is likely to accelerate the growth of cryptocurrency as a mainstream asset class in Australia.

The draft bill addresses uncertainty by setting targeted rules for key activities, and the consultation period allows for further refinement based on real-world feedback. This plays a key role in encouraging overseas investment here in Australia.

The question is no longer whether cryptocurrency will play a role in Australia’s financial future but how quickly we can create the frameworks that allow all Australian investors, whether self-directed, advised or institutional, to participate with clear direction and regulatory assurance. The faster we implement this legislation, the more our economy – and Australian investors, including advised clients – will realise the benefits.

Vakul Talwar, general manager for Australia at Crypto.com.