Australia Tightens Oversight of Crypto Exchanges Through a Draft Legislation: Impacts on Crypto and Regulatory Details

Australia is moving to bring crypto exchanges under stricter government control through new draft legislation that would treat them like traditional financial businesses. The proposed law would require most crypto platforms to get special licenses and follow the same rules that banks and other financial companies must follow.

The draft legislation creates two new types of financial products under Australia's corporate law and requires crypto exchanges to hold an Australian Financial Services License. This means exchanges would need to register with the main financial watchdog and follow strict rules about how they handle customer money and crypto assets.

The changes come after several crypto business failures that hurt consumers who lost money when companies collapsed. The government wants to protect people who use crypto exchanges while still allowing the industry to grow, with penalties reaching up to 10% of a company's yearly income for rule breakers.

Australia's Draft Law: Oversight and Compliance for Crypto Exchanges

A group of professionals in a modern office reviewing holographic displays of blockchain data with the Australian flag in the background.

Australia's draft legislation extends existing financial services laws to cryptocurrency exchanges and digital asset platforms, requiring them to obtain Australian Financial Services Licences. The Australian Securities and Investments Commission will gain direct oversight powers over these platforms under the new regulatory framework.

Major Changes in Digital Asset Regulation

The draft legislation represents a shift from Australia's current light-touch approach to cryptocurrency regulation. Under existing laws, crypto exchanges only need to comply with anti-money laundering and know-your-customer rules.

The new framework brings digital asset platforms under the same regulatory umbrella as traditional financial institutions. This means cryptocurrency exchanges must follow the Corporations Act requirements that already govern banks, brokers, and other financial service providers.

Key regulatory changes include:

• Direct oversight by the Australian Securities and Investments Commission

  
  

• Mandatory financial services licensing for qualifying platforms

  
  

• Strict capital reserve requirements

  
  

• Client asset segregation obligations

  
  

• Enhanced consumer protection measures

The legislation responds to global events like the FTX collapse in 2022, which highlighted risks in unregulated cryptocurrency markets. Assistant Treasurer Daniel Mulino described the draft as "the cornerstone of our digital asset roadmap."

Key Definitions: Digital Asset and Tokenised Custody Platforms

The legislation creates two main categories for regulation. Digital Asset Platforms include services that facilitate trading, exchange, or transfer of cryptocurrencies and digital assets.

Tokenised Custody Platforms cover businesses that hold or safeguard tokenised assets on behalf of clients. This includes wrapped tokens, staking services, and any platform storing client digital assets.

The law specifically includes:

• Centralised cryptocurrency exchanges

  
  

• Digital asset brokers and trading platforms

  
  

• Stablecoin issuers with 1:1 collateral backing requirements

  
  

• Custody providers and wallet services

Exclusions from regulation:

• Non-financial tokens like gaming tokens

  
  

• Most NFTs without financial characteristics

  
  

• Decentralised protocols with no central control

  
  

• Pure software providers without custody functions

Stablecoins receive special attention, requiring full collateral backing and transparency measures to prevent under-collateralised schemes.

Licensing Requirements and Obligations

Affected businesses must obtain an Australian Financial Services Licence from the Australian Securities and Investments Commission. This is the same licensing framework used by banks, insurance companies, and investment firms.

Core compliance obligations include:

1) Governance Standards:

• Minimum capital reserves based on business size

  
  

• Robust risk management frameworks

  
  

• Independent board oversight structures

  
  

• Regular compliance reporting to regulators

2) Operational Requirements:

• Client asset segregation from company funds

  
  

• Transparent fee and settlement processes

  
  

• Cyber security protection measures

  
  

• Professional indemnity insurance coverage

3) Consumer Protections:

• Clear dispute resolution procedures

  
  

• Compensation schemes for platform failures

  
  

• Fraud protection and monitoring systems

  
  

• Regular independent auditing requirements

The legislation treats crypto operators as financial institutions rather than technology companies. Non-compliance carries penalties up to AUD 16.5 million or 10% of annual turnover.

Exemptions for Small Operators

The draft legislation includes proportional exemptions for smaller cryptocurrency platforms. These exemptions prevent regulatory burden from crushing early-stage startups while protecting consumers using larger platforms.

Small operator exemptions apply when platforms:

• Hold less than AUD 5,000 per individual customer, or

  
  

• Process less than AUD 10 million in total annual transactions

Exempt platforms still must comply with existing anti-money laundering rules. However, they avoid the full Australian Financial Services Licence requirements and associated compliance costs.

The exemption thresholds recognize that smaller platforms pose lower systemic risks. This approach allows innovation in the cryptocurrency sector while focusing regulatory attention on platforms handling significant customer funds.

Consultation on the draft legislation runs until October 24, 2025, with final laws expected in 2026.

Enforcement, Industry Impact and Global Implications

Australia's new crypto regulations bring strict penalties for non-compliant exchanges and require significant operational changes across the industry. The measures align Australia with international regulatory standards while reshaping how digital asset platforms operate domestically and globally.

Penalties for Non-Compliance and Enforcement Actions

The Australian Securities and Investments Commission has increased enforcement activities against non-compliant crypto businesses. AUSTRAC's current "blitz" targets exchanges and money remitters that fail to meet anti-money laundering requirements.

Key enforcement measures include:

• Mandatory licensing for all cryptocurrency exchanges

  
  

• Stricter identity verification requirements for users

  
  

• Enhanced reporting obligations for suspicious transactions

  
  

• Regular compliance audits for digital asset platforms

Non-compliant operators face significant financial penalties and potential business closure. The government has made clear that compliance with AML regulations is mandatory, not optional.

Crypto ATM operators now face tougher oversight with strengthened KYC requirements. These measures ensure legitimate use of cryptocurrencies while preventing illicit activities.

Industry and Consumer Impact

Digital asset platforms must adapt quickly to new compliance requirements or risk losing market access. Many exchanges are investing heavily in compliance systems and legal expertise.

The regulations require platforms to obtain an Australian Financial Services Licence. This process involves extensive documentation and ongoing regulatory obligations.

Industry changes include:

• Higher operational costs for compliance

  
  

• Increased barriers to entry for new exchanges

  
  

• Enhanced consumer protection measures

  
  

• Greater market transparency

Some industry experts worry these rules may slow innovation in Australia's crypto sector. Others argue the regulations will increase investor confidence and market stability.

Consumer protection improves through mandatory licensing and stricter operational standards. Users gain clearer legal recourse when issues arise with exchanges.

Alignment with Global Regulatory Trends

Australia's approach mirrors regulatory developments in major markets worldwide. The country aims to prevent falling behind international standards for crypto oversight.

The new framework extends existing financial services laws to cover cryptocurrency exchanges and stablecoin issuers. This approach follows similar models adopted by other developed nations.

Global alignment features:

• Consistent AML/CTF standards

  
  

• Similar licensing requirements to traditional finance

  
  

• Enhanced cross-border regulatory cooperation

  
  

• Standardized consumer protection measures

The regulations position Australia to participate more effectively in international crypto policy discussions. Global exchanges operating in Australia must now meet the same standards they face in other major markets.

This regulatory convergence helps reduce compliance complexity for international crypto businesses while maintaining local consumer protections.

Frequently Asked Questions (FAQs)

The new Australian crypto regulations require exchanges to obtain financial services licenses and follow strict compliance rules. These changes affect customer asset protection, international operators, and enforcement penalties.

What regulatory measures will the new Australian law impose on cryptocurrency exchanges?

Crypto exchanges must obtain an Australian Financial Services License (AFSL) to operate legally. This puts them under the same regulatory framework as banks and traditional financial institutions.

Exchanges need to maintain minimum capital reserves and segregate customer funds from their own assets. They must implement robust cybersecurity frameworks and independent auditing processes.

The law requires transparent transaction settlement rules and conflict of interest management systems. Exchanges must also establish formal dispute resolution processes for customer complaints.

Stablecoin issuers face special requirements including 1:1 collateral backing and strict transparency reporting. All regulated platforms need insurance or compensation schemes to protect customers.

How does the proposed legislation affect the operation of existing crypto exchanges in Australia?

Current exchanges operating without proper licenses will need to apply for AFSL approval or cease operations. The transition period allows time for compliance preparation before full enforcement begins.

Small operators with less than AUD 5,000 per customer or AUD 10 million in annual transactions may qualify for exemptions. However, larger platforms must meet full regulatory requirements.

Existing exchanges must upgrade their technical infrastructure to handle client fund segregation. They need to establish governance structures that meet ASIC standards.

Many exchanges will face higher operational costs due to compliance requirements. Some smaller platforms may consolidate or exit the market due to these increased expenses.

Will there be any changes to the Know Your Customer (KYC) requirements for Australian crypto exchanges?

The legislation builds on existing AUSTRAC Anti-Money Laundering and Counter-Terrorism Financing rules. Exchanges must continue following current KYC requirements under these frameworks.

New draft AML/CTF rules from AUSTRAC may introduce stricter oversight measures. These updates aim to combat financial crime in the crypto sector more effectively.

Exchanges will need enhanced customer verification processes as part of their AFSL obligations. This includes stronger identity checks and transaction monitoring systems.

The regulations require better record-keeping and reporting of customer activities. Platforms must maintain detailed audit trails for regulatory review.

What impact will the Australian draft law have on international crypto exchanges operating in the country?

International exchanges serving Australian customers must obtain local AFSL licenses or stop operations. They cannot operate in Australia without meeting the same requirements as domestic platforms.

Foreign platforms need to establish Australian entities or partnerships to maintain compliance. This includes setting up local customer support and dispute resolution services.

International exchanges may face higher barriers to entry due to licensing costs. Some global platforms might choose to exit the Australian market rather than comply.

Major international exchanges like OKX and Kraken have expressed support for the regulations. They view compliance as necessary for long-term market stability and growth.

How are customer assets and privacy issues addressed under the new regulatory framework for crypto exchanges in Australia?

Client funds must be completely separated from exchange operating funds to prevent commingling. This protects customer assets if the exchange faces financial difficulties.

Exchanges need insurance or compensation schemes to cover customer losses from hacks or fraud. This provides additional protection beyond basic asset segregation requirements.

The legislation requires robust cybersecurity frameworks to protect customer data and assets. Platforms must implement strong technical safeguards against security breaches.

Customer privacy protections follow existing financial services privacy laws. Exchanges must handle personal data according to Australian Privacy Principles and banking standards.

What are the penalties for non-compliance with the new oversight regulations set by the Australian government?

Non-compliant exchanges face fines up to AUD 16.5 million per violation. Penalties can also reach three times the benefit gained from the breach.

Alternative penalty calculations include 10% of annual company turnover if this amount exceeds the base fine. The government applies whichever penalty amount is highest.

Serious violations can result in both civil and criminal charges under the Corporations Act. Company executives may face personal liability for regulatory breaches.

ASIC can also revoke licenses and shut down non-compliant operations entirely. These enforcement powers make non-compliance extremely risky for crypto businesses.