Blockchain development in Australia overseen by eight regulatory bodies

In order to take a blockchain concept to market, Australian players need to jump regulatory hurdles enforced by eight separate government bodies.
Written by Asha Barbaschow, Contributor

Fintech startups and financial institutions looking to develop blockchain or distributed ledger technology (DLT) in Australia may be required to meet regulatory requirements laid out by eight separate government bodies.

Currently, the Australian Securities and Investments Commission (ASIC), the Reserve Bank of Australia (RBA), the Australian Tax Office, the Australian Prudential Regulation Authority, the Australian Competition and Consumer Commission, the Office of the Australian Information Commissioner, the Australian Transaction Reports and Analysis Centre, and the Digital Transformation Agency all hold certain regulatory powers over the country's financial services sector and its use of blockchain.

Some of these regulatory organisations also have working groups, such as one led by the RBA and the Council of Financial Regulators (CFR) -- which includes members from the Australian Transaction Reports and Analysis Centre (AUSTRAC) -- that are also considering implications and regulatory requirements of DLT for the financial system in Australia.

Consultancy firms and analysts such as Deloitte have also weighed in on what they see as the opportunities and implications of blockchain in Australia.

This week, ASIC published an information sheet for existing licensees and startups that are considering using DLT to develop operating market infrastructure, or to provide financial or consumer credit services.

ASIC said it expects the application of DLT to grow exponentially over time, but noted its existing regulatory framework is able to accommodate the DLT use cases it has come across to date. However, as DLT matures, the government body anticipates that additional regulatory considerations will arise.

"Our approach to developments in the fintech sector is to work to harness opportunities and economic benefits, not stand in the way of innovation and development," ASIC's guidelines state.

"At the same time, we need to mitigate any potential risks of new business models through the use of new technologies."

In reinforcing its regulatory remit, ASIC has established an Innovation Hub to help fintech startups developing "innovative" financial products or services to navigate its regulatory system.

Earlier this month, Standards Australia published a Roadmap for Blockchain Standards, determining the industry should first develop blockchain and DLT terminology standards as a means to clarify definitions in the sector and to set the pace for further related standards.

Australia's non-government standards body was charged with managing the secretariat of an international technical committee for the development of blockchain standards by the International Organization for Standardization (ISO) in September, with 16 ISO member bodies including Germany, the United States, the United Kingdom, France, Canada, Estonia, Japan, and South Korea also participating in the development of ISO/TC 307 Blockchain and electronic distributed ledger technologies.

Australia will host the first international blockchain standards meeting for ISO/TC 307 next month.

Whilst the technology is still an emerging one, Standards Australia highlighted that its applications can be foreseen across a wide spectrum of sectors: Financial services; consumer products and services; health; government; minerals and precious stones; real estate; the Internet of Things (IoT); and business.

In October, the Commonwealth Bank of Australia, in partnership with Wells Fargo and Brighann Cotton, claimed the first interbank trade transaction combining blockchain technology, smart contracts, and the IoT.

The transaction involved a shipment of 88 bales of cotton from Texas, United States to Qingdao, China, with the trade involving a letter of credit being executed through a digital smart contract stored on a private distributed ledger -- using Skuchain's Brackets system.

CBA is not the only organisation in Australia to toy with Blockchain technology. A project using a shared, distributed ledger that can store complete transaction history has almost been completed by the Australian Securities Exchange (ASX).

The exchange recently said its blockchain initiative is on track for a final decision in the second half of 2017, with the prototype complete and the organisation moving to build an "industrial-strength solution" to use as its equity settlement and clearing platform.

The ASX had announced last June that it was building a new post-trade solution using blockchain technology, asking for market feedback. This followed the ASX enlisting US-based firm Digital Asset at the start of the year to help it develop blockchain solutions for the equity market.

ASX group executive for operations Tim Hogben also said recently that blockchain is ideally suited for securely recording medical health information.

The Sydney Stock Exchange (SSX) similarly announced a project recently that would see it instantly settle trades using blockchain technology with the help of Sydney-based Bit Trade Labs.

Australia's incumbent telco carrier Telstra also announced in September it was experimenting with a combination of blockchain and biometric security for its IoT smart home offerings.

Australian Treasurer Scott Morrison said previously the federal government is "keenly aware" that the financial services sector plays a critical role in the Australian economy.

Morrison noted the government's Fintech Advisory Group's progress of the review of opportunities for blockchain; the examination of ways to improve data availability; the introduction of the regulatory sandbox to support new entrants testing their financial services offerings; and the extension of venture capital tax concessions for early-stage startup investments.

"Whilst these measures have been successful and well-received by industry, the Turnbull government continues its fintech agenda by commencing work on an enhanced package of further reforms to be released and implemented this year," Morrison said.

As the finance industry is not an easy one to navigate, especially for emerging players, Morrison said the government is working on an enhanced package of further reforms to be released and implemented this year.

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