Andrew Bragg (NSW, Liberal Party) Share this | Hansard source

I rise to make some comments as a second reading debate speech in relation to this bill on digital assets. The reason that this bill has been introduced is that the government have put regulation of digital assets into the slow lane. The main point about having regulation in this area is really based on two things. The first thing is that we want there to be a system of no regulatory arbitrage. In other words, we actually want Australian consumers to be able to access products and receive appropriate levels of consumer protection regardless of the vehicle or the structure that they're using.

The reality of cryptocurrencies and blockchain based products is that they are unregulated, whereas we have a highly regulated financial market. Any person who watches a football game on television or some other business on TV will see wall-to-wall adverts for various cryptocurrencies, and this is all unregulated in this country. So if you decide to invest a lot of money into cryptocurrencies, you are doing so on the basis that there is no regulatory options available to ASIC or any other agency to protect you if things go bad.

The other point here, though, is of regulation, and I generally take a pretty strong position that more regulation is not a good thing. Our job here in Canberra is not to pile more and more new laws on the statute books. But in this case the lack of regulation is forcing investment offshore. Having spent a lot of time, for better or worse, on these issues in my time in federal parliament, people have said to me, 'Why are you so interested in these issues?' It's not about the interests of a personal investor. The value of this technology is that it can disrupt existing industries, it can improve the amount of products and services which are available to the people of Australia and it can do that at a lower price. Ultimately, our role here is not to prop up oligopolies; our role here is to try to have a proper market economy where new ideas can easily come into the market. Because, as we've seen with the debate about Qantas and Qatar, competition is a good thing, and the point of cryptography and Blockchain is it can disrupt markets. It can improve the options which are available to the Australian people. Therefore, the lack of regulation here is causing investment to go offshore.

The government, with Minister Stephen Jones in the driver's seat over there in the Treasury, has decided that this is not a priority. When Labor and Mr Jones came into this position of being the executive government they inherited a very detailed and quite carefully thought through platform on regulating digital assets, which was effectively that it was a policy of the Commonwealth to regulate digital asset gatekeepers. That is the key word here—gatekeepers. There would be a system where an organisation that is running a market or a brokerage, and which is offering tokens into the market for people to purchase or trade, would have to have a license. That license would have key personnel tests, capital requirements and the usual protections for consumers as part of those licensing obligations—because this is basically the wild west here. That is the policy that was inherited by this government. In March 2022 there was a Treasury consultation issued by the department, which was looking at how in fact the Commonwealth government could enact a licensing system for cryptocurrency markets whereby you would have a system of licensing gatekeepers. That consultation has already occurred—it happened in March 2022. We discovered that, upon coming to government, the new government has decided to ignore the dozens and dozens of submissions that were provided by industry experts, lawyers and consumer groups and the like who were trying to help shape the policy because they all agree that regulation is necessary to protect consumers and promote investment. But that consultation has been junked by the government. We have discovered in the hearings for this bill, and in the Senate estimates process earlier this year, that the government is soon to issue a new consultation paper on digital asset market licensing, which would be a replica or a near replica of what has already been done inside the Treasury department. So, effectively, on the basis of a commitment to have a consultation that already happened two years ago, in the coming months we will not see any serious regulation of this market in this parliament. That is the reality.

During the course of this parliament there has been the very unfortunate event of the FTX collapse, where people in Australia and across the world lost significant sums of money. One of the provisions of this bill is to segregate customer funds from the funds of the business operator, because what is alleged to have happened in the case of FTX is that there was a merging of funds of the customers and of the principals. There was an allegation that there was malfeasance and fraudulent behaviour happening. When this happened, Dr Chalmers and Mr Jones were asked by the newspapers: 'What are you going to do here? What are the remedies available to the Australian public who have been affected by this collapse?' Their answer was, 'Well, we can't do anything because we have no laws in place.' The corollary of this position is that any future collapses or market problems in this parliament are absolutely going to be on the heads of this government which has decided to lock Australia into the slowest possible lane. Now, the government would say—I am trying to be fair and reasonable here—'Well, maybe a bill isn't viable.' But the reality is the concept of regulating gatekeepers is not new. We have a very sophisticated, highly regulated financial sector. We have spent a lot of time in this parliament and through the Senate Economics Committee debating the quality of the enforcement of the financial regulation. Everyone would agree in this chamber that the country generally is not short of regulation in the proper financial sector or in the main financial sector but in this area, as I say, there is no regulation.

The point of this is that it would be very easy to pick up the concept of gatekeeper regulation and then also adopt the concept of how tokens can be defined and put into a regulatory system by looking at what is happening offshore, whether it is Hong Kong or Dubai or the UK or parts of the US or the European Commission. Australia is not Robinson Crusoe here. Australia will not be the first country to regulate digital assets down to the token level in some way, and the way to define the various types of tokens has been done before. So the government's solution here is to do a token mapping exercise, which is basically a long-running attempt to naval gaze and not do anything, but the reality is that this has been done before.

The other point I want to make here, which is quite pertinent to our ASIC inquiry and some of the other efforts that have been made in this parliament to improve law enforcement, is that ASIC has taken a lot of actions here where there have been quasi-crypto product in the market. When I say 'quasi-crypto' I make that distinction carefully because there is no regulation here, so for an organisation to call themselves a 'crypto business with a licence' is fraudulent; I mean, there is no such thing as a crypto licence. So ASIC is using other powers it has available to it to stop certain activities in the market. ASIC is doing the best it can in this area but this is not a good way for the country to run its policy. I mean, we should be having very clear laws that the regulator can enforce, and, until there are clear laws, I feel we are going to lose more and more investment and opportunities offshore.

During the hearings we were able to hear from some of the market participants. One of the major global players, Kraken exchange, told the Senate committee, 'I would suggest we are yet to see enough from the government as to the shape of potential legislation. That obviously carries risk for players in the market because it is uncertain.' 'It remains uncertain,' is what Mr Miller of Kraken said. Then Loretta Joseph, who is an advisor to the secretariat on digital assets in the Commonwealth said there was no political will to regulate crypto. Joni Pirovich, who is a leading digital assets lawyer, said that, apart from traditional finance and opportunities around CBDC and Saber coins, there has been a mass exodus of capital from Australia since around mid 2022. That is not coming back anytime soon unless we have a bespoke regulatory framework or clarity in how the existing regime applies.

So the whole point here is that this bill would put in place a framework of regulation of gatekeepers. It would ensure that key personnel tests, capital requirements and all the other obligations people would expect of a financial services business would be applicable to someone holding themselves out to be a crypto market or a brokerage. The bill also seeks to regulate Saber coins by ensuring there is appropriate backing when an organisation wants to issue a Saber coin. We've seen problems in the US with the Terra coin and other stablecoins which didn't have appropriate reserve capital behind them and therefore unravelled extremely quickly, to huge consumer detriment.

Another element of this bill is that it requires banks and financial institutions to make disclosures to the financial regulators about any intelligence they have about the use of foreign central-bank digital currencies. Central-bank digital currencies could be a great risk to our democracy. They could be, if operated by authoritarian regimes, a way to replace commercial banks. They could be a way that foreign governments may wish to surveil citizens, including foreign citizens. I'm very concerned that, particularly given the dynamics in the Pacific region, we could see a situation where, through the use of mobile telephones and through stablecoins, you could see a currency emerge from a foreign government and it take hold in the Pacific and become the de facto day-to-day currency, which would give foreign governments a huge amount of intelligence about what people are doing in their day-to-day lives, which would be an incursion of privacy that we would never accept in our country. So the bill also puts some protections around ensuring we have more information about the potential use of CBDCs, which could emerge in certain diasporas in Australia, and we need to know more about that.

Ultimately, I have introduced this bill because the government have put Australia into the slow lane on cryptocurrency and digital assets. This is hugely regrettable because it means that people will have fewer choices and higher prices, but it also means that Australia will be exposed to an unregulated market at least for this parliament and probably beyond. Now, if this was an issue that the unions or the big super funds were asking the government to move on, they would have moved on it yesterday. This is the government for vested interests, which only gets out of bed for the big super funds and the big unions because ultimately that is the reality of the government for vested interests.