‘Don’t try to reinvent the wheel’ warns Kraken Australia boss as Treasury plans crypto regulations for 2023
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The Australian Treasury signalled on Thursday that it plans to bring in regulations regarding crypto next year, and local exchange bosses from Kraken, BTC Markets and Binance are welcoming the news.
A spokesperson for Treasurer Jim Chalmers said the Treasury is planning regulations to improve investor protection next year, according to a report from the Australian Financial Review.
The Treasury is reportedly “closely monitoring the fallout from the FTX collapse, including further volatility in crypto asset markets and any spillovers into financial markets more broadly.”
Per the AFR, the spokesperson added: “These developments highlight the lack of transparency and consumer protection in the crypto market, which is why our government is taking action to improve the regulatory frameworks while still promoting innovation.”
These Treasury observations and plans follow the news that the Australian Securities and Investment Commission (ASIC) has suspended the financial services licence of the Australian chapter of FTX until May 15 next year.
Stockhead gathered some thoughts on the Treasury’s regulation-plan update from three of the country’s leading exchanges.
“It was always on the cards,” Kraken Australia’s managing director Jonathon Miller told Stockhead in a video chat on Thursday, referring to the government’s regulation commitment. “We’ve had a lot of consultation in Australia around regulation.”
He’s not wrong. Stockhead has been chatting with various local industry entities about this subject for the best part of a year now. And Miller, other exchange bosses and several prominent industry figures such as DigitalX CEO Lisa Wade and former Blockchain Australia boss (now Blockchain APAC MD) Steve Vallas have been instrumental in the discussion with different sides of the political spectrum in Australia.
Miller continued: “As to the character of the regulations, that’s still to be determined. But we hope there will be continued open consultation, because that has been a very positive process.”
The Kraken Australia boss acknowledged the government’s “token-mapping” audit of the industry is a difficult task, but does have some concerns about ill-considered regulations being pushed out that could stifle the industry.
“We just hope that we don’t see a replay of the bad decisions that regulators have made in some places, for example Japan, where unfortunately the constraints are too tight,” he said. “Because then you’ll see people operating from offshore. FTX was operating from offshore, they recently bought a business in Japan [Liquid Global], it wasn’t working out for them.
“And Binance has been operating from offshore into Japan. We we tried to offer products onshore to Japanese people, but it’s just very hard to offer a compelling service and to innovate when the constraints are too tight.”
“My message to local regulators here is that they don’t try and reinvent the wheel necessarily too much and look to what’s happening in places like Europe, where there seems to be pretty decent consensus around what reasonable regulation is,” continued Miller.
“And any talk you hear about Australia leading the way and being trailblazing regulators is, to me, just a beat-up, really.
“There’s regulation that’s being developed out there in the world. Let’s try and harmonise our view around a reasonable stack of requirements put forward by different regulatory regimes.
“Otherwise, you’ll just see regulatory arbitrage, which is exactly what FTX did, which is the exact reason that they failed – because they’re based out of Bahamas with most of their business offshore.”
But what about the FTX US entity? Wasn’t that a reasonably big part of the business?
“FTX US turned out to be pretty much irrelevant,” answered Miller. “Its regulatory footprint turned out to be an irrelevancy.
“Overall, I think it just needs to be a reasonable approach from the government here, where it takes into account the global nature of the business and the global nature of crypto.”
Stockhead spoke to Miller at length, and we covered topics including the FTX fallout and Kraken’s history of employing cryptographically audited Proof of Reserves – something that other exchanges are only just moving towards since the Sam Bankman-Fried empire blew itself to pieces.
“We have been longstanding proponents of regulation, alongside other industry participants,” said BTC Markets CEO Caroline Bowler in comments shared with Stockhead yesterday.
“Custodial services, or safeguarding of assets, differs in digital assets versus traditional finance,” she noted, while anticipating a regulatory regime here to reflect those differences and mitigate specific risks.
“Similarly, for exchanges, segregation of client assets, capital requirements and auditing are in line with industry expectations,” Bowler added. “It’s important that regulation balances the requirements of investor protection without smothering innovation,” she believes, which echoes some of fellow exchange boss Jonathon Miller’s sentiment.
“We see this potential regulation as an opportunity for Australia,” said Bowler. “It will correctly position us alongside our global peers as a leader in digital asset regulation. This will be a win for the Australian economy of the future.”
The BTC Markets boss also emphasised that while participating in an unregulated market, her exchange has always adopted a conservative approach to the management of client assets, applying a risk-management framework modelled on the traditional finance sector where feasible.
“A conscious decision was made to ensure our clients’ assets were segregated, onshore custody provided and 1:1 ratio maintained,” she said.
“While there are valid concerns about governance and behaviour, there are also intrinsic differences in risks that must be considered when regulating the industry.
“The problems that have surfaced over the past week, are not cryptocurrency related but exacerbated by a lack of effective governance and regulation, coupled with highly unethical human decision making.
“Industry participants such as BTC Markets will continue to engage with government representatives in crafting proportionate regulations to shape the cryptocurrency landscape,” continued Bowler.
“We believe that regulation of cryptocurrencies should not be seen as an end goal; rather it should be part of a broader strategy for promoting innovation in this space.
“The future of blockchain technology is evident as is the importance of the cryptocurrency sector in securing Australia’s presence as a technology leader on the global stage.
“The core fundamentals have not changed, the underlying technology is still the same and regulation needs to focus on governing human behaviour, ensuring consumers are protected whilst supporting the continued evolution of the crypto industry in Australia.”
Meanwhile, Binance Australia also contacted Stockhead with a statement from its CEO, Leigh Travers:
“Binance Australia is encouraged by the government’s plans to introduce custodial and exchange legislation to protect Australian users,” said Travers, adding:
“We contributed to the Treasury consultation earlier this year and are firmly advocating for the government to take action and introduce clear digital asset regulatory frameworks. We look forward to working with policymakers to bring this to fruition.”
At Stockhead we tell it like it is. While Kraken is a Stockhead advertiser, it did not sponsor this article. None of the contents of this article represent financial advice.