Address to the 2024 AFR Crypto & Digital Assets Summit - Australia's Falling Behind on Financial Innovation

The Coalition Government set out a clear regulatory roadmap

Three years ago, Crypto regulation was set to become a reality in Australia. 

I had just concluded chairing the Senate Select Committee on Australia as a Technology and Financial Centre. 

Our Final Report made 12 recommendations which provided a comprehensive regulatory framework for crypto. 

These recommendations included establishing a market licensing regime for Digital Currency Exchanges, including capital adequacy, auditing and responsible person tests under the Treasury portfolio. In other words, regulate crypto. 

Within 8 weeks of our Final Report, the former Liberal Government had adopted 11 out of 12 of our recommendations. 

In December 2021, we set out a bold yet considered timeframe for digital asset reform. The former Government had intended to: 

• Regulate gatekeepers;
• Examine the potential of Decentralised Autonomous Organisations (DAOs); and
• Determine the appropriate taxation framework for digital assets.  

And all of this within 12 months. By March 2022, this bold reform agenda was in full force, when Treasury released a consultation paper entitled, ‘crypto asset secondary service providers (CASSPr): Licensing and custody requirements.’

At the time, I was hopeful that by the end of 2022, Australia would have established a legislative structure. 

‍

Labor has put Australia in the regulatory slow lane

In the leadup to the election, I was sceptical, but optimistic, that there would be a bipartisan approach towards these regulations. 

A month out from the election, there was criticism that Labor had no plan for crypto regulation. In response, the then Shadow Financial Services Minister Stephen Jones, defended Labor’s approach in April 2022  before the election:

"The broad principles Labor [we] would take to crypto regulation is safety and transparency."

It was good to see Labor recognise the need to implement crypto reforms, but I was concerned that their lack of interest and detail meant that they had no genuine plan and no ideas. 

Unfortunately, I was right. 

Mr Jones was in the job for 3 months before he mentioned crypto reform. When on the 22nd of August 2022 Mr Jones said the government was 

“Ready to start consultation with stakeholders on a framework for industry and regulators.”

On the same day, Mr Jones announced that the Government would commence a token mapping exercise, with a consultation paper to be released ‘soon’.

In other words, Mr Jones confirmed that Labor’s commitments to crypto regulations before the election was merely cheap lip service. 

For reasons which still remain unclear to me, Labor and Mr Jones completely abandoned the CASSP consultation paper. 

This CASSP consultation paper was released on 21 March 2022. It should have led to the regulation of market operators and custody arrangements. 

Instead, we find ourselves back at square one, because on 16 October 2023, Jones had the Treasury re-release a very similar consultation paper and reset the clock on public consultations. 

It took 18 months for Labor to re-release our consultation paper. It is now almost 12 months since that consultation paper was released and since then, a deathly silence. 

Labor has put us in the regulatory slow lane, because the uncomfortable truth is that they don’t want crypto regulation. 

Not even the collapse of FTX in November 2022 could jolt Labor into action even though the Treasurer Jim Chalmers said in October 2023 “the proposed reforms seek to reduce the risk of these collapses happening…”

That was nearly 12 months ago. 

In the space of just two and half years, Australia has gone from crypto leader to crypto laggard. 

‍

Going nowhere under Labor

Almost two years on from the collapse of FTX, crypto regulations are still nowhere in sight. As many of you are aware, last year the Treasury did release a consultation paper. 

You as industry participants have already been consulted on these regulations. Re-releasing a consultation paper that was released in March 2022 is another way for Labor to keep us in the regulatory slow lane. 

Labor can commission as many papers as they want, but until these reforms are legislated into law, they’re a waste of ink. At this rate, there will be no crypto regulations enacted during this term of Parliament. 

So much was confirmed during Senate Estimates in October 2023, when the Treasury confirmed that these reforms would not even be introduced to the Parliament until 2024, if then. It’s now September 2024, and we haven’t seen anything. 

Furthermore, on the tax treatment of crypto, Labor has twice delayed a Board of Tax review which we commenced. The Board finally gave their report including recommendations to the Government in February this year.

Over 6 months later, we’ve heard nothing from the Government on tax either. Tax practitioners are anxiously waiting for and seeking certainty, and the Government hasn’t even bothered to publicly release the report.

Labor’s goofing around with these regulations has created two impacts. First, it has left consumers exposed to the risks of an unregulated market. Secondly, Australia is missing out on blockchain innovation. 

Crypto exchanges want regulatory certainty, which this Labor Government is unwilling to give them. Our strong financial regulatory framework in combination with a sound regulatory framework, positioned us to become a regional hub for crypto assets. 

As other developed economies in our region implement crypto regulations, the opportunity to become a crypto hub is fast slipping away. 

But it doesn’t need to be like this. 

‍

I introduced a crypto bill in March 2023

Having grown frustrated with Labor’s crypto inaction, in March 2023 I introduced a Private Senators’ bill, the Digital Assets (Market Regulation) Bill. 

I introduced this bill because I believe that if the government does not want to act, the Parliament must. 

Moreover, I introduced this bill to demonstrate that Labor’s excuses for delaying these reforms are unfounded. 

The framework I have proposed broadly aligns with what is proposed in Treasury’s most recent consultation paper.Licensing for exchanges, custody requirements and stablecoins are included in the bill.

These proposals have all already been extensively consulted on, having first been recommended in the Final Report of the Senate Select Committee on Australia as a Technology and Financial Centre, almost three years ago.

The time for consultation is over. It is time these proposals became law. 

Unlike a consultation paper, my bill could be implemented into law. But in September last year, Labor rejected supporting my bill, when it was brought before a Senate Committee. 

For 18 months, my bill has been sitting in the Senate, with Labor no closer to supporting it. 

Labor is not genuine about implementing crypto reforms, they rejected my bill because they’re incapable of putting partisan politics aside. 

This is highly disappointing because by not supporting my bill, Labor and Mr Jones are exposing Australians to an unregulated market.

Labor claims that this is because my bill lacks detail. But that’s exactly the point.

My bill contains a regulation making power, to give the responsible minister with the power to introduce specificity and make certain changes as the market evolves. This means that regulation can move with innovation, rather than remain frozen. 

We know the impacts that the collapse of FTX had on consumers, and the broader perception of crypto within our society. None of this would have happened if we had strong crypto regulations in place. 

Labor and Mr Jones are aware that over 30,000 Australians were impacted by the collapse of FTX. Their refusal to implement these reforms means that the next collapse will be on their heads. 

If Labor’s favourite vested interests in the big super funds and the union movement wanted crypto regulation, these reforms would already be the law of the land. 

Despite Labor rejecting my bill in the Senate Committee, they still haven’t rejected the bill in the Senate. 

Labor can put my bill to a vote tomorrow. With their support, crypto regulations could become a reality now, and not after the next election. 

But because crypto regulation is not on the laundry list of issues of Labor’s vested interests, we find ourselves in regulatory purgatory. Failing to regulate has meant that Australia has been unable to benefit from blockchain innovation, particularly in housing. 

‍

The impact on housing 

Over the last decade, the blockchain has been used across various sectors to develop innovative solutions that reduce costs and improve customer experiences. 

As you are all aware, for many Australians, their number one priority is for Canberra to help solve the housing crisis.

Like with crypto regulation, housing policy has gone backwards under this Labor Government. Just seven years ago, Australia was building 225,000 new homes per annum. This year, that number is set to plummet to 160,000. 

Labor’s solutions, like the Housing Australia Future Fund and housing targets, have failed to move the dial. Even if these targets were to be met, Labor has embarked on what I call a ‘corporate housing approach’ where they only want to encourage big institutions or the government to build and own homes, not people. 

Labor’s corporate housing approach is the reason why Labor has done nothing to make housing more affordable, especially for first home buyers. 

Solving the housing crisis requires more than just building new homes. But the crisis will be made so much worse, under Labor’s approach. 

No one silver bullet will solve the crisis. We need innovative and creative solutions that help more Australians own their own home. 

Internationally, regulators and the private market are increasingly turning to the blockchain to find ways of reducing entry costs and increasing home ownership rates. 

Labor’s inaction on crypto regulations is robbing Australians of potential benefits that the blockchain could provide on helping individuals enter the property market and, ultimately, own their own home.

‍

Tokenisation of Home Ownership

For example, the blockchain has allowed for the emergence of the tokenization of housing. Housing tokenisation allows for multiple individuals to own a share, or ‘token’ in a particular property. 

Unlike traditional housing funds, ownership is shared based on how many units or tokens an individual holds in a specific property. 

The number of units held in a property determines the level of ownership in the property. 

There are many issues which tokenisation of housing would raise: who pays for repairs or improvements to the property, and who decides if these are even needed or desirable? If the home is rented out, who gets to determine when or if to change the rent, and by how much? And so forth.

All these, as well as issues around the likely size and liquidity of markets for such tokens, would need to be considered carefully in an Australian context.

That said, tokenized housing could potentially help bridge the deposit gap to assist more Australians enter the property market – by reducing the risk that rising house prices might leave them unable to ever get their first foothold on the property ladder.

Allowing individuals to tokenize property might, arguably, allow them to use the private market to gradually meet the gap between what they can afford and where they want to live. 

Currently, the closest things to this in Australia may be shared equity schemes. These schemes involve government assistance being provided in exchange for the government owning a proportion of your home. 

These schemes have a low uptake, because individuals generally don’t want to co-own their home with their Government. 

Not only do they have low uptake, they are costly to the Budget, and are not a sustainable way of solving the housing crisis. 

Federal Labor’s proposed shared equity scheme, ‘Help-to-Buy’, has stalled in the Senate for good reason. 

The proposed caps under Labor’s scheme are below the median house price in every capital city in Australia, bar Melbourne. 

At least problems like that don’t exist with tokenization, because tokenization is a free market solution. It doesn’t rely on government handouts nor does it impose unworkable caps. 

‍

Settlements

In 2024, property transactions in Australia are almost entirely undertaken through eConveyancing. 

However, when looking at the settlement processes that are used, one entity holds a near monopoly with a 99% market share. 

This market concentration results from state-based regulations mandating the use of this particular entity for all property transactions. 
This regulatory favouritism spawned from the security this particular software provided. But after almost 15 years, there are more innovative and secure solutions that could be explored. 

Blockchain technology, and specifically smart contracts has the potential to transform eConveyancing in Australia. 

A joint report from RMIT and the Real Estate Institute of Australia found that blockchain technology “could help to reduce friction in complex transactions, broaden service offerings, facilitate tokenisation, increase transparency and improve information flow.” 

In Dubai, the Dubai Land Department (DLD) has been using the blockchain to conduct property transactions since 2016. 

Using the blockchain has reduced the time and costs of settlement. 

It is for this very reason that Lantmäteriet Sweden’s land registry is developing its own blockchain network for property transactions. 

Sweden’s implementation of blockchain settlement is still ongoing, but once implemented, it will save Swedes an estimated $160m AUD per annum in property transaction fees. 

The UAE and Sweden are two countries that have embraced crypto regulations and are seeing the innovation dividends flow.

But at the moment, we have a Government in Canberra that’s afraid of innovation. 

None of this is possible, because Australia still hasn’t passed the first hurdle of implementing 

even the most basic crypto regulations. 

If we are going to have increased competition in e-conveyancing, we must ensure that there is well-regulated blockchain settlement.

Productivity Commissioner, Danielle Wood, described the current e-conveyancing as uncompetitive, saying: 

‘'Well, there's a monopoly provider, so that makes it uncompetitive.”

The bottom line is we need to find creative ways to reduce housing costs. 

By locking Australia in the crypto slow lane, Labor has stifled innovation and denied Australians the opportunities to reap the benefits that blockchain provides. 

‍