Aussie reforms on the way for cryptocurrency, digital wallets and BNPL providers

Australian Treasurer Josh Frydenburg has announced a slew of regulatory proposals covering cryptocurrency, digital wallets, and buy now, pay later (BNPL).

The announcements follow the release of three government reviews that all found Australia's regulatory environment has failed to keep up with the changing payments landscape, where half of Australia's population now make around AU$650 billion non-cash payments every single day. 

Given the changing landscape, Frydenburg said the federal government would respond to all 41 recommendations across the three reviews.

The reforms will look to give Treasury expanded powers in overseeing payments policy and addressing emerging and future gaps in the payments regulatory framework.

"Given the pace of change and those leading it, if we do not reform the current framework it will be Silicon Valley that determines the future of our payments system," Frydenburg said.

"Australia must retain its sovereignty over our payment system."

As part of those powers, Treasury will work with industry and regulators to develop a strategic plan for payments systems that will be launched in the middle of next year. The plan will entail implementing regulatory oversight on digital wallets, such as Apple Pay and Google Pay, as well as BNPL providers like Afterpay.

Currently, Australia's payments systems laws do not regulate digital wallets and BNPL providers.

The requirement for digital wallet providers to hold Australian financial services licences could be on the table, although the federal government has noted this would only be considered on a case-by-case basis.

Looking at the potential cryptocurrency reforms announced on Wednesday, the federal government will consider requiring Digital Currency Exchanges (DCEs) to hold the assets of Australian investors onshore. It will also begin consultation early next year on a licencing framework for DCEs that will allow the purchase and sale of crypto assets by consumers within a regulated environment.

Australia's Board of Taxation, meanwhile, will begin research for advising on a policy framework for the taxation of digital transactions and assets.

"For businesses, these reforms will address the ambiguity that can exist about the regulatory and tax treatment of crypto assets and new payment methods. In doing so, it will drive even more consumer interest, facilitate even more new entrants, and enable even more innovation to take place," Australia's treasurer said.

These cryptocurrency reforms and initiatives are expected to be implemented throughout 2022.

Treasury will also start consultation on the viability of a retail central bank digital currency (CBDC), a digital asset issued by a central bank and linked to a sovereign currency. Its CBDC findings will be provided at the end of next year.

The Reserve Bank of Australia last month said it remained unconvinced by the cryptocurrency boom, arguing that the emergence of a centrally issued digital asset, like a CBDC, could make cryptocurrencies redundant.

The Australian Securities and Investments Commission similarly took a conservative stance last month, with agency chair Joe Longo saying that consumers should approach investing in crypto assets with "great caution".

"Those here who are directly involved in the broader managed investments sector will understand the serious implications of investing without understanding. It is not an approach to be undertaken lightly," Longo said.

Finally, on the issue of de-banking, the federal government will task the Council of Financial Regulators with considering policy options for addressing the large number of fintechs and DCEs facing this experience.

The CEO of Fintech Australia in September told a Senate committee that around 150 of her organisation's members have been de-banked by banks and financial institutions in Australia, with no reason provided or ability to appeal the decision. De-banking occurs when a bank declines to provide its services to an individual or business. Austrac has noted that de-banking could increase the risk of money laundering and terrorism financing while hurting the economy.

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