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

Jess Walsh (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

In rising to speak on the Digital Assets (Market Regulation) Bill 2023, as the chair of the Senate Economics Legislation Committee, I do want to acknowledge the important role that private senators' bills play in this place. They do allow us to examine issues and work out the best way to address them. I'd like to thank Senator Bragg for providing the Senate and the economics committee the opportunity to look at the really important issue of digital assets. What we heard loud and clear in the inquiry is that industry does support regulation, so that's a good thing. But we also heard loud and clear that regulation needs to be fit for purpose, it needs to be aligned with the existing financial services regime and it needs to be developed in a consistent process with industry. The bill that is before the chamber today doesn't meet those tests, and the committee therefore recommended that the bill not pass. Again, we do appreciate the opportunity that bills like these generate for discussion.

The government is developing a fit-for-purpose model and it is doing it collaboratively with the support of industry. What we heard in the inquiry is that industry wants a careful, clear pathway and process forward. They want us to get this right. They don't want us to get it rushed. The government's token-mapping consultation process has been endorsed and supported by industry. The role of token-mapping is to correctly identify and define the suite of digital assets to be regulated and, importantly, to identify where more regulations are needed. It's a really important process, as we did hear during the inquiry on this bill. It's needed to avoid the sorts of problems that submitters did talk to us about with this bill with regard to confusing definitions and demarcations on what digital assets and digital products are in or out. The token mapping exercise is also about looking at what existing regulations are working well, and the Treasury process received just shy of a hundred submissions. Importantly, this is just the start of the reforms and consultation that industry is welcoming. Next, the government will explore opportunities to reform licensing and custody of crypto assets, especially those that fall outside our existing financial service regulation. But we shouldn't forget that digital assets are regulated in this country today. Our corporation, consumer and competition laws regulate large sections of the industry, and our regulators—ASIC, AUSTRAC and even the RBA—work every day to monitor and act where required.

While industry agree that more regulation is a good thing, this bill in its current form is really not what industry are seeking, as they told us in the inquiry. Critically, this particular approach fails to work with our existing regulations and the familiar way of doing things for financial services providers. We heard that the bill creates a new, complex system of licensing that works in competition with the Australian financial services licensing and corporations law. As new as the technology may be, digital assets should play with the same rule book as everybody else. We heard during the Senate Economics Committee inquiry that the bill lacks detail and does not provide the certainty that industry is looking for. The committee found that the approach that this bill takes to establish a new bespoke regulatory regime, as outlined by the deputy chair in his remarks, was not well supported. FinTech Australia submitted:

…our members generally do not support a bespoke licensing regime separate to financial services licensing for crypto service providers.

The Australian Custodial Services Association told the committee that digital assets regulation:

…should look through the technology, and digital assets should be treated similarly to comparable, traditional financial products…

They support incorporating digital assets into the existing Australian financial services licensing regime to achieve consistency in licensing outcomes. The Australian Financial Markets Association said their preferred mechanism for digital assets regulation is for digital assets to be explicitly included in the definition of 'financial product' such that the existing licensing framework would apply. The crypto exchange platform Swyftx told the committee:

…the existing financial services licensing regime can be appropriately modified to accommodate crypto assets.

Similarly, Revolut Australia said that extending the provisions of the Corporations Act 2001, including the AFSL regime, to crypto products was 'logical'. Revolut Australia noted that the regulatory infrastructure already exists and that industry is already familiar with the role of ASIC in regulating financial services products.

We heard evidence from those who deal with digital assets every day that this bill is not the way to progress critical regulation and that they agree with the approach that the government is taking to get regulations right. The Financial Services Committee and the Digital Commerce Committee of the Law Council of Australia said:

…where possible and appropriate, digital asset service providers should be licensed under existing regulatory regimes, and if any new licensing regime is introduced, unnecessary duplication and uncertainty should be avoided…

Ms Jaime Lumsden, a partner at Hamilton Locke, submitted to the committee:

Broadly, we believe that Treasury's current consultation process provides the most appropriate forum to receive industry feedback and develop appropriate regulations for the crypto asset opportunity.

Witnesses told us across the inquiry that they support the approach government is taking. They talked to us about how welcome the engagement with industry is and that they think the government is listening. Again, what they really stressed is that we need to get it right, not get it rushed, and that we should learn from how regulation is being rolled out right now across the world. We need to look at our current regulations and see how they function, and we need to work together to identify where improvements are needed. This is the work that is underway.

We're not looking at how to regulate digital assets just for the sake of it. All the work the government is doing is to ensure that consumers are protected, to ensure investors have greater certainty and to support the industry in Australia to flourish. The government wants to ensure emerging risks are known and dealt with confidently. Confidence and certainty are what the sector spoke to us about over and over again in this inquiry. Confidence is what the industry needs. The benefit of digital assets will only continue to be felt across the economy as the government continues its consultation with industry towards a secure and certain regulatory path. With the growth of the sector, new skills and new high-value jobs will be welcomed across the economy.

To conclude, again, we welcome the contribution of Senator Bragg to this debate. Private senators' bills provide all of us in this place the opportunity to explore and canvass different ways of doing things. The committee found that the bill was not widely supported in the industry. We found that a bespoke model of regulation was not supported and we found that there was support for continuing to work with government.

The government is leading the work to regulate digital assets in Australia, and the digital assets sector is continuing to work with government. That's the process that we should support in this place to get the right outcome, not the rushed outcome. It's the process that I support.

Paul Scarr (Queensland, Liberal Party) Share this | Link to this | Hansard source

At the outset, I note Senator Walsh's generous remarks with respect to the contribution that Senator Bragg's private senator's bill is making to the debate, and I associate myself with those comments. But can I ask, is the process being rushed? In March 2022—not 2023—Treasury put out a consultation paper in relation to this very issue. One and a half years later, Senator Bragg, to his credit, has been compelled to introduce this private senator's bill because the government is on the go-slow.

If there is one area of public policy where you cannot be effective and efficient when you're on the go-slow, it's fintech and regtech, because the market is moving so quickly. Every day that passes whilst the government is on the go-slow in this area is a day where Australia loses opportunity and where Australian consumers are exposed to unacceptable levels of risk. It's been 1½ years since that consultation paper was released by Treasury in March 2022. Did we get any timeline from Senator Walsh, as chair of the Senate Economics Legislation Committee, with respect to Assistant Treasurer Jones's progress in relation to this matter? Absolutely nothing. It's on the never-never.

As Senator Bragg said, rightly, if this matter concerned the big industry consumer funds or the trade union movement there'd be a guillotine on this debate and we'd have 25 minutes. We would have been given the bill last night, given 25 minutes to debate it and it would be in effect. That's the reality. On this regulation, this critical area of opportunity for Australian investors and entrepreneurs and the risk in relation to Australian consumers, the government is on the go-slow. I have no expectation that government is going to introduce its own bill in relation to this matter during this term of parliament, so the only thing we're left to do in the Senate is consider Senator Bragg's bill because he's doing the government's job in relation to this policy area, and he's doing a mighty fine job with this private member's bill. So that's what this chamber's faced with: nothing, the go-slow approach, consultation upon consultation, people being consulted to death, and platitudes, but no action or effective regulation—just a huge, yawning lacuna or gap in this policy area. What this chamber should do is sensibly consider the very constructive contribution made by Senator Bragg to this debate.

From my perspective, there are a number of points to make. Given there is a gaping hole in the regulatory framework, there is an urgent need for regulation to protect investors and consumers, and it is not good enough that the government has failed to act in this area and has no constructive or positive timetable to fill that gap. Every day that passes when we don't have a regulatory framework which investors can adhere to and on the basis of which investors can invest with certainty is a day when investors will go offshore, because our competitors in this area, as Senator Bragg has made clear, are not on the go slow in-this policy area. They're actually doing constructive things. They're providing the frameworks and opportunities. If I learned anything from serving on Senator Bragg's fintech and regtech select committee—and I learned many things serving on that committee with Senator Bragg—it was that there will be talented Australian entrepreneurs with skill sets in this space who will only stay in this country for a certain period but will then become so frustrated at the lack of action by government in these areas that they will simply move offshore. They will take their enterprises offshore, they will take that opportunity for other Australians offshore, and Australia will miss that opportunity.

The second point is the need to protect investors and consumers. Senator Bragg's bill provides a framework in that regard. I also know—and I think it's important that we all consider this—about the points which Senator Bragg made with respect to how these new technologies in the fintech and regtech space can actually have a positive impact in disrupting the market and providing other opportunities for consumers and investors to achieve positive outcomes, not going through the tried and true methods. That's a positive thing as we consider market power across the economy, so I also agree with that sentiment.

When you look at what's being proposed by Senator Bragg in this private senator's bill, you will see it's quite a sensible regime. The first point is with respect to licensing, especially for those digital asset gatekeepers. It is appropriate that each of those gatekeepers who Australian consumers and investors would be engaging with be regulated and have licences with conditions which are suitable for the industry which they are the gatekeepers of. The points which Senator Bragg makes in his private senator's bill—which I agree with—in relation to the sorts of conditions and obligations which licence holders should have are things one would usually see in this investment context. The first is minimum capital requirements to provide a buffer in downturn scenarios.

The second point is on segregation of customer funds to ensure those funds are not tied up with corporate funds in the event that a digital currency exchange or custody service declares bankruptcy. There is a need to avoid the commingling of investor funds with the company's own funds which are used for other purposes. That's an issue which, as we've seen, has posed risks to consumers in other contexts. Just as it posed risks to consumers in the Sterling Financial case, so too does it pose risks to people in this space.

The third point is on government standards to bring the industry up to par with other financial services and products, and that's clearly appropriate. Senators need to remember that just because there is not a bill dealing with this issue doesn't mean that these issues aren't arising now in the economy. At the moment, they're unregulated. It's not as if these things aren't occurring now. There is an absence of bespoke regulation, so these issues are occurring in the economy now. People are being exposed to risks because the governance standards are not up to scratch now, and that is because there are no bespoke standards for this industry.

The fourth point that Senator Bragg has made with respect to licence obligations and conditions is the need to have sensible disclosure requirements for both participants and government agencies in this regard to make sure consumers and investors have the information they need to make a reasonable decision as to whether to invest or not or whether to use a particular gatekeeper or not. There is also a need for record keeping and reporting requirements to ensure that, if there are concerns or issues, the consumers, investors and regulators have access to the relevant information that's required to resolve those issues. These are all sensible proposals with respect to licensing requirements.

Senator Bragg, in his private member's bill, then deals with the important point with respect to consumer protections. Again I say to the government members that every day they're in consultation—and we've had a year and a half of consultation; we've been consulted to death in relation to this matter—is a day that consumers aren't protected. It's an unacceptable delay and an unacceptable lack of focus from Assistant Minister Jones in relation to this matter. This bill would provide critical consumer protections that would have safeguarded consumers during recent notable exchange failures, including FTX, ACX.io, MyCryptoWallet and Blockchain Global Ltd. This bill would empower ASIC to monitor and enforce licensee requirements, and the bill would also provide for appropriate civil and criminal penalties to deter misconduct. Again, that is something that is extremely important in the context of this issue.

Lastly, the bill would also empower the Parliamentary Joint Committee on Corporations and Financial Services with inquiry and reporting functions to ensure the appropriate implementation of the bill. I'm sure you would agree with me, Acting Deputy President Pratt—I don't think I'm being presumptuous in this regard—that that committee does extremely important work and acts in a very collegiate and positive matter in terms of discharging its functions, and I'm sure we would do exactly the same thing in the realm of this private member's bill. I should say, Acting Deputy President, that I very much enjoy working with you in relation to that committee and those issues, and I think we do make a very positive contribution in that regard. So, again, I applaud Senator Bragg for introducing that element into his private member's bill.

In conclusion, I think this place needs to reflect on the fact that, in the absence of this bill, there is a complete absence of bespoke regulation that is suitable for this industry at this time. There's a yawning gap, a lacuna and a hole in terms of the regulatory framework, both for investors, which would give them the certainty to invest in these opportunities, and for consumers, to protect consumers. You can keep consulting. You can consult the Australian business community and consumers within an inch of their life, but it's not achieving anything positive. The time to act was 12 months ago, not in 12 months time. We've already missed opportunities. Clearly, the government is not going to support this private member's bill, but, at the very least, the government needs to hear the message that their delay is unacceptable. The consultation needs to stop, and the action needs to start. It should have started on the day the assistant minister was given his portfolio obligations.

The opportunity is there. Every day that passes where we don't have the regulatory framework in place to take advantage of that opportunity is a day where opportunity is lost, and that opportunity is lost to international competitors that have built a regulatory framework. If they can do it in places like Singapore, why can't we do it here? What's the issue? Come on! We need to get on the bus and actually get this done. That's what we need to do. We need to be far more proactive in terms of opportunities in this space. Every single day that passes without the framework being in place, such as what has been proposed by Senator Bragg, is a day where Australian consumers are exposed to those financial disasters that Senator Bragg referred to, such as the FTX disaster. Every day is a day where they're not protected because we don't have the appropriate regulatory framework.

These points were certainly made by various witnesses who engaged in the consultation process. I would like to quote the RMIT Blockchain Innovation Hub Researchers. In their submission, submission 4, they said:

… if Australia fails to adapt to and enable digital business models, these platforms will still be built—they will simply be built in other jurisdictions, or remain in dark parts of the economy, leaving consumers and investors exposed.

Those aren't my words—those aren't Senator Scarr's words—and they're not Senator Bragg's words. Those are the words of the experts in the field, the RMIT Blockchain Innovation Hub Researchers, who know far more about this area of the market and policy than anyone else in this Senate chamber. In saying that, I note that Senator Bragg knows a hell of a lot more about this than I do. But these are the experts, and this is what they're telling us:

… if Australia fails to adapt to and enable digital business models, these platforms will still be built—

So, it's still happening. The government's going slow in terms of developing a regulatory model, but it's still happening. Again:

… these platforms will still be built—they will simply be built in other jurisdictions—

so Australia loses the opportunity altogether, and our investors lose the opportunity—

or remain in dark parts of the economy—

which means consumers are exposed to risk. Those are the two elements of this bill where I think the arguments put forward by Senator Bragg are extraordinarily persuasive: Australia's economy being able to take advantage of the opportunities, on the one hand, and consumers being protected, on the other. If we fail to act—this is the end of the quote—we are 'leaving consumers and investors exposed.'

I'm very, very happy to have risen in support of Senator Bragg's private member's bill.

Matthew Canavan (Queensland, Liberal National Party) Share this | Link to this | Hansard source

I too want to give credit to Senator Bragg for bringing this very important piece of legislation forward and giving a kick along to the efforts towards appropriate regulation of cryptocurrency and digital assets in Australia. I've been fortunate enough to spend some time with people in the fledgling cryptocurrency and digital assets industry in this country. They're great Australians. They're pioneers in this field. They've done some really innovative work, globally, towards establishing these assets, which are becoming much more commonly used across the world.

I've also been proud to play a small effort over my time in the Senate in helping change some of the regulations to help get the regulations to catch up. I think it is very important that we continue this discussion. It's a bit of a shame, though, that what has been a bipartisan approach to this effort does seem to have fallen by the wayside since the election. As Senator Bragg outlined, the former government was developing a regulatory framework for digital assets. It was on track to come into force some time last year. Now, almost a year on from that date, we don't see any action from the new government. It would appear that the new government has tossed out all of that work that had been done with the industry, with the bureaucracy and with the regulatory authorities. There's no real cogent explanation of why they've done that apart from perhaps thinking that anything we, the Liberal-National coalition, had done was not worth it and that they need to put their own stamp on it. The victims of that political and partisan approach are the many Australians who use these assets, rely on them and are potentially put at risk by using them, and, of course, the broader industry, which now struggles to get investment in our country because we do not have an appropriate and world-standard regulatory structure.

As I mentioned, this has been a bipartisan effort to date. I got involved in this through one of the very first Senate inquiries I was involved in, which was a Senate inquiry into cryptocurrency. I must pay tribute to Senator Sam Dastyari. He pushed it at the time. He was chair of that committee. I think he was chair. He might not have been chair, actually. But he definitely acted like a chair! Sam would do that from time to time. He pushed it really hard and we worked together to get to the bottom of what was happening. At the time, hardly anyone had heard of bitcoin. I actually remember telling a staffer that I should go and buy some Bitcoin to see what it was like, and I'm kicking myself still that I never got around to doing it—I think it was about $400 at the time. Anyway, enough of my poor financial choices!

But Sam and I worked very closely together to find the issues involved, and I'm proud of that Senate committee report because it actually led to real change, which of course is not always the case. We identified that there were issues around the GST, in the way that was applied to people using cryptocurrencies to pay for goods and services. There were issues with the income tax system as well, especially when converting from a cryptocurrency back to a national currency. And to give then Treasurer Joe Hockey and the government their due, they duly considered these recommendations and made the changes. I think that within a year or two they had acted on our Senate inquiry recommendations and made those changes. I know that many in the then cryptocurrency industry were very thankful for that. It helped a lot for them in selling Australia as a place for investment in cryptocurrency, with a government that was forward leaning in developing a regulatory structure for digital financial services.

As I said, that has continued; that broader regulatory structure was in the design phases under the former government. I'm just asking—I'm humbly requesting here, and so is Senator Bragg—'Let's get on with it and do this now.' It's about time. From speaking to the industry, this is something I know they want: they want this kind of structure so that they can give confidence to consumers. It puts them on the same playing field that exists for non-digital assets and it will help them attract more consumers because they have a level of protection from government regulation. And, crucially, it will allow them to attract more capital, because if such regulatory structures exist in other countries and we don't have one then that's a major, major gap for us. So let's just get on with it. I'm confident that Senator Bragg and all of us on this side are willing to work with the government on this. I realise the government is unlikely to support Senator Bragg's bill but, hopefully, it will spur them on to bring their own bill forward which we can duly consider. As I said, I'm sure there'll be a cooperative approach from this side and all of the chamber to make sure that this can work.

One reason I'm a bit perplexed, though, about the go-slow on this is that since last year's election it has become even more important to establish such a regulatory structure. We have seen extremely high-profile and high-consequence failures of cryptocurrency businesses. Those were overseas, primarily; I'm sure many Australians, though, would have been affected by the collapse of SFX and the issues with firms like Binance and some so-called 'stablecoins', which have collapsed in value. Many Australians probably have lost thousands of dollars through these deficiencies. Obviously, that has spurred on a response in the US, primarily, to regulate the sector. It should also increase urgency in this country, because, as I said, even though those firm firms were not Australian—and, to my knowledge, I'm not sure if any Australian firms have been caught up with these big scandals—many Australian consumers do access these services from overseas. Obviously, there's now a heightened degree of caution in the investment community about digital assets and about investing in any particular assets which might have questionable backing.

That's why this bill is very important, and I give Senator Bragg credit here for the deep thinking he has given to this bill. He does go to great lengths to make sure that ASIC have the appropriate powers and oversight here, as they do with non-digital assets. There are specific provisions in this bill for minimal capital requirements, which would help to avoid—or at least lower the risk of—the situation we saw with SFX and others. There are requirements on digital asset companies to segregate customer funds so that they're not mixed up with other parts of the business. Obviously, it's important to have better governance, disclosure and record-keeping requirements in this bill. And, very importantly, this bill also has specific regulation of the so-called stablecoins. These are coins that are normally linked to the value of some other underlying assets—sometimes a national currency and/or a commodity price—but often, obviously, their stability is only as strong as their direct backing from that underlying asset. This bill would require those issuing stablecoins to hold in reserve the full amount of their liabilities with other authorised deposit-taking institutions in Australia. That would, of course, give consumers pretty much full confidence in the value of such stable coins, which no doubt will play a very important role in the digital marketplace because probably the greatest barrier to people holding digital assets is their still somewhat unstable value compared to other currencies. Our currency itself has been up and down quite a bit recently, but there are sometimes pretty wild swings in the value of cryptocurrencies.

People who don't want to face such a risk do have the option of investing in stable coins, but they themselves have proven to be often inadequate primarily I think because of a lack of regulation and requirements on the issuers of those stable coins. This bill will fix that and help establish confidence in stable coins, which would potentially attract a whole lot more consumers to this space.

I also think it's important to briefly touch on central bank digital currencies. There has been a lot of commentary about those in recent years. I myself am not convinced of the need for a central bank digital currency. I note that former Reserve Bank Governor Glenn Stevens also put some shade on whether or not there's really a reason for central banks to issue so-called digital currencies. We have to keep in mind that in effect we already have a digital currency so to speak. Most of the money that's created by the Reserve Bank is not done so via a printing press; it's done via creating account balances in the accredited dealers with the central bank. That's how our money supply works. It already is in effect in a digital form.

It's not really clear what a central bank digital currency would do. There's obviously potential to move to a blockchain, which is a different type of technology, but there's not really a lack of confidence in the account keeping or record keeping of our major deposit-taking institutions, either with their accounts at the central bank or those we hold ourselves, so it's not clear why we would need to move to a blockchain format. It's very different obviously in the cryptocurrency world where you're often dealing with people you do not know or have little understanding of their history. The blockchain has helped deal with those issues of trust and confidence in markets. It has helped build this marketplace by establishing this technology. We don't really need that in the established accounts that we have with people.

There is a concern out there about central bank digital currencies. If there is a blockchain or a ledger that is managed by a central authority or a government authority, do they then ultimately have access to all the transactions that occur on that ledger? Obviously there may be some ability to encrypt those transactions themselves, but that often raises the point that ultimately someone has the key. Is there someone who can decrypt these things? If it is a government official or a government agency, I think there are very legitimate questions about how much we as a society want governments to know, or potentially to know, every transaction that everybody does and to potentially in the future control or restrict those transactions.

We've already seen very high-profile incidents of people being debanked, especially in the United Kingdom, over their political views. They, admittedly, have not been at least substantially directed by government. It's more just big corporates acting outside of their remit. There is obviously the potential for governments in the future to use such massive power if they were to have it. There are massive amounts of information, and information is power. If they had information on all of our transactions, I worry what that would mean for our free and open society.

Noting that I believe this bill itself does not at all seek to establish or promote the use of central bank digital currencies, there is a section of this bill that would at least require the Reserve Bank to disclose to ASIC if it did hold any foreign central bank digital currencies in Australia. This is something that has already been established in the United States, and I think it's very sensible that such an approach be established here as well.

As I mentioned earlier, the bill would give ASIC more powers here to monitor and enforce licence requirements. This is something, as I mentioned earlier, the industry is desperately crying out for. They want to be licensed; they want to have accreditation in a government certification process. I think the lack of one is limiting the development of the cryptocurrency and digital assets sector in this country. So I think what's been put forward here is very sensible. I haven't heard any suggestion that we create a separate agency to do this. ASIC already do this work for the financial services sector. It would not add a significant amount of red tape or cost for ASIC to extend their regulatory oversight to the digital asset sector.

The bill also, I think for the first time, provides clear definitions of digital assets, digital investment exchanges and stablecoins. That's something that's very important, too, to cover the broader regulatory landscape. There's obviously sometimes a bit of a grey area between what digital assets are and what they are not.

I will finish where I started, which is by encouraging the government to take this up. I think Senator Bragg has done remarkable work as a private senator. To me, the bill here is something that could almost be adopted. Obviously, it would normally go through both chambers and through more committee work than has happened to date. But really there is no excuse now, given the work that Senator Bragg has done, for the government not to get on with this and to get Treasury, who definitely have been working on this, to bring forward a bill that takes up some of Senator Bragg's work. As I said before, I'm sure we'd be happy to cooperate on the details. There'll be lots of those to work through. So let's just get on with it. There has been a bipartisan approach over the past decade—a successful approach, I think—but we now risk losing some of those businesses, some of those innovative Australians at the forefront of technology in the digital asset space, unless we can resolve this and move forward. Again, I congratulate Senator Bragg. Let's get on with it. Let's work together, make this happen and support a great Australian industry.

Slade Brockman (WA, Liberal Party) Share this | Link to this | Hansard source

Bitcoin began its life in 2008, well over a decade ago. I'm sure the first time many of us heard about bitcoin we were a bit puzzled, a bit confused. I, like many, decided to take a deeper dive into it. I didn't buy any—I'll put that on the record! Sometimes I wish I had; sometimes I'm glad I didn't. The fact is, though, that it came into existence in 2008. For most of us, it came onto the radar around that time as well because it created a massive media splash, and a lot of people who are interested in the financial world did take a strong look at it. Whether or not they got involved in that particular crypto, they did say: 'This is very interesting. This is something where the genie has come out of the bottle and is never going to be put back in.'

Here we are, in 2023, looking at Senator Bragg's private senator's bill related to digital assets, the Digital Assets (Market Regulation) Bill 2023. I must say, it's clearly not before time. It's necessary that this parliament and Australia come to grips with this for a variety of reasons that I will go into later. I do, like my colleagues, wish to thank Senator Bragg for bringing this matter forward. This is something that's very important for this parliament to grapple with. It's important for the Australian people that we consider both the implications of digital assets and digital currencies and how Australia should move forward in a regulatory sense in dealing with asset classes such as these. I think it's fair to say—and I do not pretend to be an expert in this particular asset class—that there's both misunderstanding and a lack of understanding of cryptocurrencies and other digital asset classes. There are over 8,000 digital assets available for purchase, and only a small number of those are, in fact, currencies. Even then, to define them as a currency also begins to challenge some of our preconceptions and some of our understanding of what currencies and money actually are and what they will be into the future. That's also something that we as a society and as a parliament are going to have to grapple with.

In my own considerations of these kinds of issues, 2½ weeks ago I was in the small country town of Carnamah in Western Australia where we were talking about bank branch closures and the importance of physical cash—actual money—to local communities, particularly in regional Australia. And now today we are discussing the other end of the spectrum—the digital assets and cryptocurrency, which are increasingly becoming an important asset class and something which parliaments have to grapple with.

Many of us in this room may not understand the operation of smart contracts that run decentralised finance or the algorithms that manage the blockchains. However, we need to know that it is likely to be the way payments, finance, banking and asset transactions are carried out in the future. It is estimated that 25 per cent of all Australians already hold a cryptocurrency or a crypto asset, so it is something already impacting the lives of Australians. As my colleagues have said, this is not the time to kick the can down the road, hoping that someone else might understand it better at some time in the future. There's an opportunity for Australia to grasp in both hands, and we should grasp that opportunity as soon as possible and build Australia's digital future.

Senator Bragg talked about some of the opportunities, but he also talked about some of the risks—particularly the risks of other digital currencies coming to dominate the market which are not necessarily in hands favourable to Australia or that seek to utilise the information that underlines digital currencies in a way that is favourable to Australia's interests. Senator Bragg talked about the Pacific islands and the possibility of a digital currency operating in that kind of area and then growing to scale. It is something that we do need to deal with as soon as possible.

This bill seeks to establish regulations around the fundamentals of what will enable crypto assets and cryptocurrencies to function in a modern, international, digital economy. To enable this, regulations need to be built around the establishment of an Australian dollar stable coin to allow seamless digital Fiat transactions, digital exchanges to enable the transactions of digital assets, and regulations encompassing custodian service to hold these digital bearer assets. With an Australian dollar stable coin, digital assets, exchanges, custodians and regulations to protect investors and consumers, Australia will finally have the foundation from which it can build a competitive digital future.

Other countries are already in this race. There are over 130 countries representing 98 per cent of global GDP exploring central bank digital currencies right now. Australia was one of those, but that has been terminated under this Labor government. Central bank digital currencies do cause some concerns in some areas, and I share some of those concerns, but the fact is we are seeing a global push in this area, and if Australia is not at the forefront of looking at how those central bank digital currencies will operate and how they will come into the Australian market then we risk allowing things to occur with our financial system that we do not wish to happen. We don't want Australians to look overseas for digital assets that they require to operate their businesses in a financially effective way, because that could offer other risks to our economy and to the international geopolitical environment.

Nearly every G20 country has made progress and invested resources in central-bank digital currency projects. There has been US$100 billion invested by venture capitalists worldwide since 2017, not just developing cryptocurrencies but reimagining commerce on the global scale. The biggest investors are obviously in places like New York, London, Zurich, Hong Kong, Singapore, Seoul and San Francisco. Why? Because they're all major financial centres. Global banking centres can see that the future of commerce is going to be based significantly on blockchain driven solutions, and we need to be a part of it. We see it through institutional giants like BlackRock, Fidelity, Deutsche Bank, Citadel and Franklin Templeton, just to name a few who have been investing in this kind of infrastructure. Again, this is something that Australia needs to be a part of. When you can transact $1 or $1 million globally in less than 30 seconds with no exchange-rate charges, no rent fees, no three-day delays, it's no wonder that Australians, particularly those dealing with significant amounts of money, want to be a part of this. We cannot pretend this isn't happening. We cannot pretend that these systems are not in place, as much as they do concern some people.

Although countries with major financial centres are the largest developers, smart contract-driven decentralised finance and crypto assets are being adopted massively all around the world, particularly in the developing world. Vietnam, Indonesia, Philippines, Thailand and Pakistan are adopting this technology, often at a citizen based level, because they see in these kinds of assets a level of trust, certainty and the ability to defray risk that they don't have in their own countries' financial systems. So we're seeing that these systems, these developments of cryptocurrencies and crypto assets, are providing a level of certainty and trust that allows people to step outside the systems of countries that perhaps do not have the regulatory frameworks, certainty and trust that the Australian financial system has. This is also an opportunity for Australia to be a part of this movement, to offer the trust and certainty that we have in the Australian financial system to the world.

This is probably the first new significant asset class since the Dutch East India Company developed an equities exchange in 1601. It is probably the first brand-new class of assets since then. What stands in front of us now is this new asset class known as crypto assets. Unlike the equity exchanges of the 1600s, today's cryptocurrencies and crypto assets are driven by smart contracts and will be limited only by the boundaries of our creativity. We as Australians should seek to lead that creativity. This is not to say that we need to abandon everything that has brought us to the trustworthy economic structures that we have today—in fact, far from it. As I said when I started my contribution, 2½ weeks ago I was in a small country town in Western Australia, where the importance of physical cash was highlighted.

But as I stand here in this place now, we have to recognise this trend. We have to be able to walk and chew gum. We have to be able to embrace this new technology while protecting the trust and certainty in our economic system that is the basis at its heart of Australia's prosperity. So whilst we on this side recognise this is a private senator's bill, it is sadly and likely to be enacted into law. It is an important part of the conversation and hopefully it will be a spur to those opposite to actually advance this discussion more quickly, to actually put in place the building blocks—and they won't be the final building blocks; we understand that—of how Australia is going to be a part of this new set of assets, this new crypto asset, crypto currency world. It is coming; we can't stop it. We should be a part of it. In fact, we should be world leaders in this. We have a trusted economic structure. We have a trusted regulatory environment, and we can play a significant role in this for ourselves, importantly for our region and for our allies across the world—like minded countries with whom we are closest to. In doing so, we will ensure Australia's economic development into the future.

Debate interrupted.