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

I move:

That this bill be now read a second time.

I seek leave to table an explanatory memorandum relating to the bill.

Leave granted.

I table an explanatory memorandum and seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follow s—

The Race to Regulate

In 2021, Australia gathered steam in our pursuit to become a leading jurisdiction for digital assets.

In October 2021, the Senate Select Committee on Australia as a Financial and Technology Centre provided recommendations pertaining to the regulation of cryptocurrency in Australia.

Within eight weeks, the former Government agreed in principle to 11 out of 12 recommendations.

As far as speed goes for policy, this was an extremely swift adoption.

The former Government committed to a complete consultation on the licensing of digital currency exchanges, and a finalised consultation on the custody regime by mid-2022.

In a speech to Blockchain Week in Sydney on 21 March 2022, I called for these reforms to be consolidated into a comprehensive legislative package—a Digital Services Act.

On that very same day, Treasury launched a public consultation paper seeking feedback on proposals and options on licensing and custody requirements for crypto asset secondary service providers.

We did this because we wanted to maintain a sophisticated debate on this topic regardless of what happened at the Federal election.

We had gained traction and were well on our way to positioning Australia as a hub for digital assets.

But then—the election.

We lost the election, and sadly so did our ambitions to become a leading jurisdiction as measured by rules promoting both consumer protection and investment.

Since Labor came to power ten months ago, they have barely shown any interest at all in digital assets.

The Minister Stephen Jones said on 22 August 2022 that: "our Government is ready to start consultation with stakeholders on a framework for industry and regulators…"

Six months later, in February this year, the Government finally released a pamphlet on token mapping, which has started the consultation all over again. The Government wants to start from scratch. The Senate Select Committee I chaired in 2021 was bi-partisan and the Treasury consultation was a non-partisan departmental consultation.

Australia is in the midst of a race for consumer protection, capital attraction and innovation.

The Albanese Government has commissioned another review rather than responding to the Treasury consultation on crypto markets and custody.

At a recent inquiry into their cherry-picked tax changes for digital assets, the Treasury confirmed that the Government is years away from introducing any legislation.

By commissioning more departmental reviews, the Government is trying to create the impression that it is doing something when it is not.

The Government should get on with the job of producing draft legislation rather than commissioning more reviews.

Our competitors are enhancing their regulatory systems while we establish endless reviews.

After ten months in the job, the Minister for Financial Services, Stephen Jones should be prepared to make a decision which doesn't relate to his favourite vested interests. He should release a draft bill now.

The draft bill should show how Australian consumers could be protected with capital requirements, key personnel tests, auditing, and disclosure.

Jones and Labor are failing Australian consumers. Future failures will be on their heads.

The recommendations we put out in October 2021 were largely similar to those put forward in an executive order in March by US President Joe Biden, after we released ours. So there's no argument that our recommendations don't stack up on an international level.

Previously describing cryptocurrency as a scam, the Government has outlined no coherent or timely plan in this space.

Meanwhile, the world is progressing forward—and we are getting left behind.

In June 2022, United States Senators Cynthia Lummis and Kirsten Gillibrand introduced their Responsible Financial Innovation Act, which proposes a comprehensive set of regulations for digital asset markets, subjecting them to oversight by the CFTC and SEC.

It is now March 2023, and the roadmap for reform proposed by the previous Government has obviously been abandoned by the new Labor Government.

The last several months have shown that as an emerging sector, with 20% of the population owning some form of crypto, and the emergence of Central Bank Digital Currencies issued by states that do not share our liberal-democratic values, the need for consumer protection in this space is urgent.

The collapse of the crypto exchange FTX in November last year has shown that measures in this space are urgently needed. In documents revealed under a Freedom of Information request I filed, we now know the Treasury has taken the adverse market conditions created by the FTX collapse as an excuse not to take urgent action.

This a race—a race we must win

It is a race for capital and investment in this industry and in turn, a race for our country's future and economy.

As a result of the Government's failure to progress and deal with these issues, I have taken it upon myself to develop a Private Members Bill—the Digital Assets (Market Regulation) Bill 2023.

If the Government will not act, the Parliament must force it to.

I may no longer be on the Government benches, but I maintain an interest as the Chair of the Committee that recommended these changes.

Waiting is not an option and Australian consumers are exposed to an unregulated market as we speak.

This Bill contains a number of elements for the Parliament to consider.

As foreshadowed by the 2022 Treasury Consultation Paper, this Bill includes a licensing regime which covers crypto asset secondary service providers. This is divided into three license authorisations:

The rationale for this licensing structure is two fold. Firstly, by providing a rules and standards based regime, we give confidence to the consumer that risk exposure is managed, and on par with other financial services and products.

Secondly, by providing regulatory certainty, this regime opens the door to greater investment and growth in Australia's crypto ecosystem and virtual economy, in a way that allows the industry to evolve and innovate without short-sighted constraint.

We achieve this with the licensee provisions, developed through consultation with industry and the community:

For digital asset custody licensees, requirements also include designation of key persons to be based within Australia, and for proper auditing and disclosure arrangements.

Under the Bill, ASIC has the responsibility for administering and enforcing the regime, and will be granted monitoring and investigative authority.

It's crucial that this industry comes out of the shadows into the light of day. This Bill provides for a transitionary regime as the industry progresses and is slowly integrated into the established financial services sector.

Stablecoins

In terms of stablecoins, the Bill details an issuing authorisation for firms.

Consider the collapse of algorithmic stablecoin Terra in the United States. Minimum reserve standards must be introduced to ensure that stablecoin issuers provide consumers with at least the minimum standard of consumer protection.

It is with this in mind that the Bill contains provisions mandating that licensees hold in reserve the full amount of the face value of liabilities on issue in accounts kept with an ADI in Australia.

The Lummis-Gillibrand Bill has been a useful instructor in this regard, and underlines the importance of international collaboration in setting global regulatory standards. Furthermore, the European Union's proposed Markets in Crypto-Assets (MiCA) Regulatory regime has contributed much to the debate, particularly around definitional issues for various digital assets.

One of the key issues raised by experts in the space also revolves around managing the risks and potentially the benefits of Central Bank Digital Currencies (CBDCs).

CBDCs

As the world moves on Central Bank Digital Currencies, Australia needs to keep up with both the risks and opportunities.

In its final report in October 2021, the Committee recommended that Treasury lead a policy review into the viability of a retail Central Bank Digital Currency in Australia.

On reflection, given the scale of policy reform recommendations we made, the CBDC recommendation was undercooked.

I was wrong to recommend a retail CBDC without deeply considering the privacy and big state implications.

There are numerous privacy issues that could outweigh the benefits and we should not have been as positive as we were.

I note that the RBA has recently announced use case proposals for CBDCs as part of a live pilot with industry, which I will watch with great interest.

The RBA said it was questioning whether there is really a use case for a retail CBDC in Australia, given the evolved nature of our traditional payments industry.

I remain unconvinced that a central bank should be running critical economic and security policy like digital payments when their primary role is monetary policy management.

As public policy makers, what we need is more information about the risks of CBDCs, and more information about their use.

In an article in the South Chinese Morning Post, it was reported that Chinese Central Bank data showed that not only have 4.6 million merchant outlets accepted CBDC payments, but more than 261 million digital wallets have been opened, totaling 83 billion yuan or $12.2 billion US. This is across 23 pilot regions in China.

The e-Yuan is currently in its pilot phase, and cross border payments are being trialed with the UAE, Hong Kong and Thailand. It is not currently available in Australia, but under its two-tiered approach, Chinese state-owned banks are primary disseminators of the e-Yuan via digital wallets.

In the Bill, we have therefore deemed it necessary to have provisions requiring that all ADIs disclose data to ASIC and the RBA regarding the use of foreign CBDCs in Australia. In doing this, we are following a similar approach to the US, but in an expanded capacity.

These Government agencies are also obliged to provide a report on this data to the Parliamentary Joint Committee on Corporations and Financial Services and the Joint Committee on Intelligence Security.

We need to closely analyse the development and expansion of the CBDCs if we are to preempt the risks of currency substitution and privacy breaches. Transparency is part of the solution.

It's time to have the debate

Prior to the introduction of this Bill, I have engaged in extensive consultation with stakeholders and the public on what a regulatory framework for digital assets should look like.

Australians should be free to provide feedback to Parliament on the laws that we make.

The Bill I have introduced today is laid out with that abiding dual purpose in mind—consumer protection and innovation.

I would welcome all feedback from the community and industry as the Parliament considers this Bill.

I commend the Bill to the Senate.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.