Address to the 2024 Australian Crypto Convention - Labor’s Retreat from the Great Crypto Race

ADDRESS TO THE 2024 AUSTRALIAN CRYPTO CONVENTION

LABOR’S RETREAT FROM THE GREAT CRYPTO RACE (25 MINUTES)

The Coalition Government set out a clear regulatory roadmap

In 2022, Crypto regulation was set to become a reality in Australia.

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

When Labor came to power in May 2022, they had the opportunity to pick up and own the reform agenda.

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, stating that:

"The broad principles Labor 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 detail meant that they had no genuine plan, no genuine interest, 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 Treasury’s CASSPr consultation paper. Instead, we found ourselves back at square one, because Labor and Mr Jones have failed to comprehend the urgency for these reforms.

It would take 6 months for any meaningful progress to be made, when in February 2023, Treasury released another paper and recommenced further public consultations.

That pamphlet did not propose a licensing framework for crypto gatekeepers or signal any draft legislation. Instead, it confirmed much of what was already understood about digital assets and the need for regulation.

Labor have 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.

Labor’s licencing paper is rehash of the Coalition’s paper from March 2022

More than two years on from the collapse of FTX, crypto regulations are still nowhere in sight. This is despite Jim Chalmers tweeting, “"Following the spectacular collapse of FTX late last year, the government is set to embark on a shake-up of cryptocurrency laws” in October last year.

Labor wants you to believe that its ‘Regulating digital asset platforms’ consultation paper is a sign of progress. But it’s not. It was released over a year ago, with no action from Labor since.

The proposals made in this new consultation paper mirror what Treasury proposed in the CASSPr more than 3 years ago now.

You as industry participants have already been consulted on these regulations. Many times. 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 are a waste of ink. At this rate, there will be no crypto regulations enacted during this term of Parliament.

Parliament’s final Sitting Week of the year is next week, and little hope remains of Labor acting on crypto regulation before the 2025 election. The industry now faces regulation via enforcement, with ASIC left to pick up Labor’s slack, as updates to Information Sheet 225 are expected mid-December.

With SEC Chair, Gary Gensler, announcing his resignation, and the US expected to become a crypto powerhouse once again, under Labor, Australia lags behind every developed economy in the world with its approach to crypto.

Labor’s goofing around with these regulations has created two impacts. First, it has left consumers exposed to the risks of an unregulated market. Second, it has driven investment offshore.

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, like Hong Kong, Singapore and Japan implement crypto regulations, the opportunity to become a crypto hub is fast slipping away.

But it doesn’t need to be like this.

We introduced a crypto Bill in March 2023

Having grown frustrated with Labor’s crypto inaction, in March 2023 as a bankbencher, 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. I said as much at Senate Estimates in October 2023.

Moreover, the introduction of my Bill demonstrates that Labor’s excuses for delaying these reforms are unfounded.

The framework I have proposed broadly aligns with what is proposed in Treasury’s consultation papers. This includes licensing for digital currency exchanges and custody requirements, and the issuance of stablecoins is included in the Bill.

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

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

When governments have failed to move on proper inquiries into the financial sector, the Senate has previously forced their hand, as it did with the Banking Royal Commission. The Senate should do the same on crypto regulation.

Regardless of whether my Bill is accepted, the Senate Committee provided Labor with the opportunity to amend and adopt my Bill.

But because Labor has never been genuine about implementing crypto reforms, they rejected my Bill because they are incapable of putting partisan politics aside.

This is highly disappointing because by not supporting my Bill, Labor and Mr Jones continue to expose Australians to an unregulated market.

Labor claims that this was because my Bill lacked detail. But that’s exactly the point.

Like Markets in Crypto-assets Regulation provided a regulatory framework in Europe, my Bill contained 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.

But because crypto regulation is not on the laundry list of issues of Labor’s vested interests, we find ourselves in regulatory purgatory. Their tax agenda is proof of this.

The Government has refused to release the Board of Taxation’s review

You only need to look at the delays in dealing with the taxation of crypto. In March 2022, the former Liberal Government commissioned the Board of Taxation to propose the most appropriate method of taxing crypto and other digital assets.

The terms of reference provided clear guardrails to ensure it aligns with other jurisdictions and does not increase the tax burden on crypto holders.

Despite the Board of Taxation closing submissions on 30 September 2022, we are still waiting for Labor to release these findings.

In a further effort to stall any form of crypto regulation, Labor twice delayed the release of these findings, and in February this year upon delivery of the report to the government, refused to release it publicly.

By cherry-picking this tax, Labor failed to consider the broader regulatory landscape of the digital economy.

Last year, we saw the government attempt to implement a half baked law to tax crypto, as a result of El Salvador holding a strategic reserve of Bitcoin, and its adoption as legal tender.

This year, we saw President-elect Trump announce plans for the US Government to hold a strategic reserve of Bitcoin. This could be an opportunity for Australia, to which Labor is none the wiser. If their pace of reform on crypto gatekeeper regulation is any indication, Labor will fail to adequately assess the opportunities and risks of a similar policy.

As a starting point, the Government should be open and transparent in implementing specialised laws and regulations. That would mean releasing the Board of Taxation report publicly.

This week in the Senate, I will seek to have the Board of Taxation’s ‘Review of the Tax Treatment of Digital Assets and Transactions in Australia’ released under an order for the production of documents. The order will bring a vote to the Senate, which if successful will require the Treasurer to table the report in Parliament, and subsequently be publicly available.

It will be telling to see if Labor votes to support the order.

Treasury has now released a new consultation, for the industry to consider the application of the OECD’s Crypto Asset Reporting Framework in Australia. This would require digital currency exchanges to share tax information with overseas jurisdictions.

Labor isn’t looking into the risks of CBDCs

More broadly, the Government has a very thin agenda on payments policy. They seem blind to the many opportunities but also risks that exist geopolitically in the payments space. Chief amongst these is the potential prevalence of CBDCs, in our region.

Given their inherent link to nation-states, there is the potential for CBDCs to be used to distort regional and global security.

Having crypto regulations in place means that if either of these scenarios was to occur, there would be a regulatory framework to understand market dynamics to respond accordingly.

But this risk isn’t even on Labor’s radar.

Despite the crypto sector feeling the brunt of Labor’s approach, it is indicative of Labor’s overarching economic mismanagement.

Labor’s economic mismanagement

Labor’s economic mismanagement has highlighted broader longstanding constraints within our financial system generally.

Australia’s financial system is too rigid and as a result, is failing to keep up with market innovation.

Labor’s approach leaves me with no hope they can address these constraints and ensure that our financial system can thrive throughout the 21st century.

We have seen Labor fail on insurance, with insurance payouts provided by super funds being difficult to access when needed.

We have seen Labor fail on super more broadly, with Labor allowing super funds to build and own homes across the country, whilst restricting first-home buyers from using their super for their home. Furthermore, the Government’s first legislative act on super sought to cover up payments from super funds to unions, by repealing disclosure requirements put in place by the former Coalition Government. The Senate subsequently disallowed Labor’s cover-up.

This is what happens when you only govern for your favourite vested interests.

Labor’s legislative strategy and policy agenda is defective. A piecemeal, reactive and biassed approach to reform will only put Australia in the innovation slow lane, doing nothing to adequately protect consumers or attract and retain investment.

With Labor’s economic mismanagement causing Australia’s worst cost of living crisis since the global financial crisis, it is difficult to imagine Australians participating fully in the current market all time highs, without regulatory protections, in their current economic circumstances. We have done more for crypto in opposition, than Labor could in 2.5 years of government with the resources of Treasury and ASIC at their disposal. It is not their priority.

Since the dissolution of the last Australian Parliament, with Labor taking government:

• Singapore passed the Financial Services and Markets Act, enabling the digital token service license;
• The UK Parliament passed the Financial Markets and Services Bill, enabling regulation of cryptoassets;
• Hong Kong’s created a Dual-Licensing Regime for Virtual Asset Trading Platforms;
• Dubai has created the Virtual Asset Regulatory Authority, to license and regulate crypto businesses.
• The US President-elect has announced he will create a US Government Bitcoin reserve.

Under Labor, crypto is dead in Australia.