Australian regulators argue to regulate crypto by financial function, unlike US, UK rules

Regulators in Australia say crypto should be subject to the same regulations as traditional financial products because they perform the same functions.

An official at the Australian Securities and Investments Commission said regulators should focus on what a digital asset does, not the technology used to build it.

ASIC advocates for rules that regulate crypto based on the financial job

Regulators have noted major similarities between crypto and traditional financial systems, even though the technology for digital assets is new. For example, some crypto projects raise capital by issuing tokens to investors, just as companies do in traditional markets through shares and bonds. Similarly, people use stablecoins like other payment instruments to trade and transfer funds. 

Some crypto companies even offer financial contracts that allow traders to hedge price movements or manage risk. Regulators will use this approach to classify different digital assets by case under securities laws or payment service regulation, or to decide whether they fall entirely outside financial regulation.

Using a functional approach could reduce the risk of regulatory loopholes and create better expectations for businesses and investors. Policymakers in Australia believe the existing legal framework may already cover most activities involving digital assets, but lawmakers in other regions think otherwise.

For example, the EU created a specific rulebook for digital assets through the Markets in Crypto-Assets Regulation (MiCA), which outlines laws for different crypto assets and their companies.

In the U.S., regulators like the U.S. Securities and Exchange Commission rely on enforcement actions and court decisions to regulate crypto. Lawmakers have also proposed new laws, like the Digital Asset Market Clarity Act, to define and classify digital assets. 

Policymakers in Australia want to create oversight without rebuilding the entire financial regulatory framework, so they are gradually integrating regulation for digital assets into the existing financial services system. 

One significant part of such a strategy is providing information on how current laws apply to digital assets. An example is the extensive regulatory guidelines provided by ASIC through ASIC Information Sheet 225. In such a document, there is clarification on how digital asset activities may be included in the definition of financial products and financial services.

Regulators focus on platform and investor risks

The guidance also indicates how crypto setups are regulated, given the services around them, and many risks to consumers with crypto are inherent to the middlemen, not the technology.

For example, it is common for crypto platforms to hold customer assets, manage digital wallets, and offer services such as lending and yield generation. There may be associated risks of custody, governance, and operational stability. 

There is always a possibility of losing access to funds if the crypto platform mismanages assets or goes out of business. Therefore, it is of particular concern for regulators how crypto platforms operate and whether they adhere to proper regulations.

Australia is also planning to update its laws in a similar fashion. Lawmakers proposed the Corporations Amendment (Digital Assets Framework) Bill 2025, an addition to current financial laws. Instead of completely changing the old laws, it is introducing new laws for digital asset platforms and those that hold tokens for users.

This means, in practice, that companies providing trading platforms or custody services may be required to comply with licensing, conduct, and asset protection requirements similar to those applicable in the rest of the financial industry. However, the overall framework of Australia’s financial services regulatory regime would remain the same.

While this system is still developing, regulators say there are still some issues to address. For example, digital asset networks can operate across many countries simultaneously. This can make it difficult to enforce regulations.

Some digital asset networks claim to be decentralized and have no operator. In this case, it is necessary to examine closely who is actually controlling and benefiting from this system to determine where it should be regulated.

Despite the challenges facing Australia’s financial regulations, it is apparent that their direction aligns with a broader ideology that holds that financial regulations can evolve gradually in response to new technologies. This means that instead of having to change all of the regulations in place every time a new financial system is created, it is better to apply existing principles in new contexts.

If this process continues to develop well, it may serve as a model for other jurisdictions that are still trying to determine the best course for regulating digital asset markets.

Many jurisdictions are still trying to determine the best course for balancing innovation and oversight. In that regard, Australia’s evolving model is just one potential approach for integrating emerging financial technologies into traditional regulatory regimes.

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