Main Points :
- Australia is proposing draft legislation to require cryptocurrency exchanges and custody providers to obtain an Australian Financial Services Licence (AFSL) and comply with conduct rules.
- Breaches could trigger fines up to A$16.5 million, three times gains, or 10% of annual turnover (whichever is higher).
- Exemptions may apply for small or low-risk operators (customer holdings < A$5,000 or annual trading < A$10 million).
- The proposal expands oversight beyond exchanges to digital asset custody, stablecoin intermediaries, and “digital asset facilities,” but excludes fully decentralized token systems.
- The reform draws on international frameworks like the EU’s MiCA and OECD reporting standards.
- Australia has already begun fines/enforcement (e.g. Kraken/Bit Trade, Binance issues) and new relief for stablecoin intermediaries.
- The regulatory shift aims both to protect consumers and to foster institutional confidence and innovation in blockchain/crypto in Australia.
1. Introduction: A Turning Point for Crypto in Australia
Australia is on the cusp of a major regulatory pivot in how it treats cryptocurrency platforms. Until now, most crypto exchanges in Australia were regulated through AUSTRAC registration (largely for anti-money laundering (AML) and counter-terrorism financing (CTF) compliance). But as of September 2025, the government has released a draft bill that would bring crypto exchanges and related digital asset service providers under the same licensing and conduct framework that governs traditional financial services.
For readers seeking new crypto opportunities or thinking of deploying blockchain use cases, this shift matters deeply — it potentially increases barriers to entry, but also promises greater regulatory clarity and institutional legitimacy. In the sections that follow, I’ll survey the draft’s core features, compare with enforcement precedents, examine exemptions and international parallels, and consider implications for innovators and investors.
2. The Draft Licensing Regime: Key Provisions
2.1. Requiring AFSL for Crypto Platforms
Under the draft, crypto exchanges, custody service providers, and other “digital asset platforms” would be required to hold an Australian Financial Services Licence (AFSL), under the Corporations Act, just like other financial services businesses.
This would mark the first time crypto platforms are formally folded into the financial services licensing regime. The platforms must “act honestly and fairly,” avoid misleading conduct, and especially manage client assets prudently.
Existing AML/CTF obligations (already under AUSTRAC) would be retained and integrated. Indeed, the current regime demands registration with AUSTRAC for digital currency exchange (DCE) providers.
2.2. Penalties for Non-compliance
One of the more striking features of the draft is the scale of sanctions. A crypto firm that breaches the conduct or licensing rules could face the greater of:
- A$16.5 million (~US$10.9m),
- Three times the benefit derived from the breach, or
- 10% of the firm’s annual turnover.
This aligns with what the government announced publicly.
These stiff penalties are intended to deter misconduct and bring crypto platforms into parity with the potential liability faced by traditional financial firms.
2.3. Exemptions for Small / Low-Risk Firms
To avoid overburdening startups and micro-operators, the draft includes an exemption threshold: firms with customer holdings under A$5,000 per person and annual trading under A$10 million may be exempt.
This carve-out aims to reduce regulatory friction for small-scale players. However, many more significant platforms will not qualify.
2.4. Scope: Custody, Stablecoins, “Digital Asset Facilities”
The proposed regime is not limited to exchanges. It extends regulation to custody services, tokenized custody platforms, and other “digital asset facilities” (e.g. multi-party trading venues).
Interestingly, fully decentralized token systems (i.e. smart contracts or token protocols not under intermediary control) are excluded from licensing under this draft.
Also notable: the draft references stablecoin distribution and custody, which indicates Australia aims to regulate stablecoins in its payments landscape.
2.5. Governance, Risk & Compliance Requirements
To comply, crypto firms will need to institute internal controls including:
- Segregation of client assets (i.e. hold customer funds separate from own).
- Cybersecurity and operational resilience frameworks.
- Clear risk disclosure and conflict resolution procedures.
- Internal governance that ensures “proper and efficient management” of operations.
These are parallel to existing AFSL expectations.
Further, the draft incorporates elements of OECD’s crypto reporting framework to enhance tax transparency.
2.6. Timeline and Consultation
The consultation period for feedback runs until October 24, 2025.
The final legislation is expected by late 2025, with a 12-month transition period for existing operators to adapt.
3. Enforcement Precedents & Market Signals
3.1. Kraken / Bit Trade Penalty
Australia is not waiting for the law to act. In December 2024, its Federal Court fined Bit Trade (the operator of Kraken in Australia) A$8 million (~US$5.1 million) for offering margin extension (i.e. credit/loan) products without requisite regulatory compliance or proper suitability checks.
This is a signal that the regulator is willing to act aggressively against non-compliant crypto firms.
3.2. Binance and Retail Client Protections
ASIC has also pursued Binance Australia Derivatives in court for misclassifying retail clients as wholesale, thereby stripping them of consumer protections. Compensation of A$13.1 million (~US$8.3 million) was arranged for affected customers.
Such cases underline that regulators are scrutinizing not only product compliance but client classification, fairness, and disclosure.
3.3. AUSTRAC’s AML Monitoring Efforts
On the AML side, AUSTRAC has heightened scrutiny on crypto ATMs, pushing non-compliant operators to deregister or face enforcement.
They’ve also published indicators of suspicious crypto activity to guide transaction monitoring systems.
3.4. Relief & Exemptions for Stablecoin Intermediaries
In parallel with the toughening of crypto regulation, ASIC has granted class relief to intermediaries distributing stablecoins issued by an AFS-licensed issuer. That means such intermediaries may not need separate licences beyond their existing AFS or AFSL obligations.
This suggests regulators are trying to strike a balance: making stablecoin flows smoother while still preserving oversight.
4. International Parallels & Regulatory Inspiration
4.1. EU’s MiCA (Markets in Crypto-Assets)
The European Union’s MiCA regulation (fully applicable since December 2024) is often seen as a benchmark. MiCA imposes licensing, capital, and conduct rules on crypto asset service providers, custodians, and stablecoin issuers across EU jurisdictions.
Australia’s draft draws from MiCA in structure, particularly in extending licensing to exchanges and custodians, and in demands around transparency and consumer protection.
However, MiCA is more prescriptive about capital and reserve requirements for stablecoin issuers, whereas Australia’s draft is lighter (so far) in those domains.
4.2. Singapore’s Payment Services Act
Singapore’s regulatory regime under the Payment Services Act (PSA) also serves as a regional model. Under the PSA, crypto exchanges and payment services must obtain licenses and comply with conduct, capital, and AML rules. Australia references aspects of Singapore’s approach.
4.3. OECD Crypto Reporting & Tax Transparency
Globally, regulators are embedding tax and reporting frameworks via the OECD’s crypto asset reporting rules (CARR). Australia’s draft includes reference to that standard to align with international tax transparency frameworks.
5. Implications for Crypto Investors, Startups & Blockchain Use Cases
5.1. Barrier to Entry and Consolidation
The licensing, compliance, and capital burden may raise the bar for new exchanges or custodians. Some smaller or marginal operators may exit or consolidate. The exempt threshold helps some, but many mid-tier players won’t qualify.
5.2. Institutional Confidence & Capital Inflows
On the flip side, applying “bank-grade” regulation can attract institutional capital. Investors often prefer regulated jurisdictions as it reduces legal risk. Australian platforms that pass regulatory approval may gain credibility globally.
5.3. Stablecoin & Payments Ecosystem
By giving relief to stablecoin intermediaries and planning oversight for tokens used as payment rails, Australia is laying groundwork for growth in programmable money, DeFi layering, and tokenized assets. This may make Australia a more hospitable environment for stablecoin innovation, on-chain yield products, and tokenized securities.
5.4. Decentralized Protocols & Layer-1 Projects
Because the draft explicitly excludes fully decentralized protocols (i.e. networks without an intermediary), layer-1 or layer-2 token projects that do not themselves act as exchanges or custodians may remain outside strict licensing constraints. That may encourage innovation in middleware, protocol layers, or dApps that do not have custodial roles.
5.5. Cross-Border Service Provision
Foreign crypto firms serving Australian clients may need to secure an AFSL or equivalent regulatory status. Otherwise, they risk regulatory enforcement even if based offshore. This may push foreign exchanges to establish Australian subsidiaries or branches.
5.6. Risk of Overregulation
Some industry observers caution that overly rigid rules could stifle innovation, lead to “regulation by inertia,” or drive protocols to jurisdictions with lighter oversight. The consultation period is critical.
6. Licensing & Compliance Timeline & Penalty Structure
7. Summary & Outlook
Australia’s proposed crypto licensing regime signals a major maturation of its digital asset sector. By bringing exchanges, custody providers, and digital asset platforms under the AFSL umbrella, and by levying steep penalties for misconduct, the government seeks to strike a balance between consumer protection and innovation.
For crypto startups and investors, the era of regulatory gray zones is waning in Australia; compliance and capital will matter. But with clarity comes opportunity: properly licensed platforms could find themselves in a stronger position to partner with institutional capital, integrate with traditional finance, and compete globally.
Decentralized protocols that avoid custodial responsibilities may be able to operate outside the licensing net, preserving freedom at the protocol level. Meanwhile, the relief granted to stablecoin intermediaries suggests Australia is also thinking practically about how to maintain liquidity, payments efficiency, and on-chain innovation without excessive friction.
One important risk: if regulation becomes too rigid, it may deter bold experimentation. The consultation phase is critical—stakeholders must weigh in to fine-tune rules. If done well, the result may be a robust, credible, compliance-friendly crypto ecosystem in Australia that balances trust, innovation, and market growth.
