Understanding the New Licensing Bill

The proposed legislation, introduced by Assistant Treasurer and Financial Services Minister Daniel Mulino, seeks to categorize Digital Asset Platforms (DAPs) and Tokenised Custody Platforms (TCPs) as financial products under the Corporations Act and the Australian Securities and Investments Commission (ASIC) Act. This move aims to close regulatory gaps exposed by the collapse of major digital asset companies like FTX.

Industry Concerns and Support

While there is substantial support for the bill, industry groups have raised concerns about its broad definitions. For instance, law firm Piper Alderman cautioned that terms like “digital token” and “factual control” might inadvertently include wallet software providers and infrastructure setups in multi-party configurations. Ripple Labs supports the control-based approach but suggests refining the bill to accommodate modern security architectures.

The committee has acknowledged these issues and plans to address them through future regulations rather than altering core definitions. This strategy reflects a balance between industry needs and regulatory oversight.

Market Implications and Next Steps

Coinbase Australia director John O’Loghlen commended the committee’s recommendation, emphasizing its potential to enhance Australia’s position in the global digital economy. However, he highlighted the persistent issue of debanking, urging the government to prioritize measures to counter it.

The bill, now poised for Senate debate, represents a pivotal step for Australia in establishing a comprehensive framework for digital asset platforms, fostering innovation while ensuring market stability.

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The directive, issued on May 30, is part of a global effort aimed at curbing money laundering and terrorism financing. Some may interpret this as Singapore deviating from its reputation as a crypto-friendly hub. However, the reality is that Singapore has been unwavering in its advocacy for regulatory compliance.

The city-state’s consistent regulatory approach means that crypto exchanges attempting to bypass licensing requirements will soon find themselves seeking refuge in less regulated jurisdictions. Joshua Chu, a Hong Kong-based lawyer and co-chair of the city’s Web3 association, stated, “With jurisdictions like Singapore, Thailand, Dubai, Hong Kong, and others tightening the screws, escaping the global compliance push is becoming increasingly difficult.”

Singapore has long been a preferred destination for crypto firms due to its Payment Services Act (PSA), which mandates licensing for firms serving local clients. With a relatively small local population, many crypto companies chose to bypass licensing by focusing on overseas markets, thus avoiding Singaporean customers.

However, the recent MAS move to push out unlicensed crypto businesses under the 2022 Financial Services and Markets Act (FSMA) is not a policy reversal, as some believe. The regulator maintains that it has held a steady stance on this issue. “MAS’ position on this has been consistently communicated over the years,” the central bank stated in a June 6 announcement.

The FSMA stipulates that any Singaporean business offering digital token services to overseas clients must be licensed. This law has not changed. Instead, MAS has concluded public consultations and is notifying service providers that their unlicensed period is ending.

As crypto firms contemplate their next move, it’s clear that the tightening of regulations is a global trend. For instance, the Philippines now requires all licensed crypto firms to maintain a physical office in the country. Similarly, Thailand recently expelled several exchanges due to licensing and money laundering issues.

Hong Kong, Singapore’s regional competitor, has emerged as a potential next destination. However, firms seeking to pivot to Hong Kong may find that securing licenses is a challenging task. As of June 6, the city had only issued 10 crypto licenses, as opposed to Singapore’s 33 digital payment token licenses approved under the PSA.

Singapore and Hong Kong are among the 40 members of the Financial Action Task Force (FATF). In accordance with FATF mandates, Singapore’s FSMA has increased regulatory oversight, particularly for crypto service providers serving overseas clients. This move aligns with the FATF’s focus on the Travel Rule and Anti-Money Laundering standards.

As regulatory alignment intensifies globally, jurisdictions like Dubai are implementing stricter AML protocols. For FATF members like Singapore and Hong Kong, tightening AML standards is expected. However, non-compliance could lead to inclusion on the FATF’s economically damaging gray list.

Ultimately, the days of jurisdiction hopping to evade regulations are numbered. As crypto firms search for their next base, the list of lenient but welcoming destinations is diminishing. Even the most crypto-friendly hubs are demanding stricter compliance.

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