Briefing
The Australian Treasury has released draft legislation that mandates all Digital Asset Platforms (DAPs) and Tokenized Custody Platforms (TCPs) holding client assets must obtain an Australian Financial Services (AFS) license, fundamentally shifting the regulatory burden from mere Anti-Money Laundering (AML) compliance to comprehensive financial oversight. This action subjects crypto intermediaries to the full suite of conduct, disclosure, and risk management standards under the Australian Securities and Investments Commission (ASIC), establishing a clear legal pathway for operation. The framework introduces severe penalties for non-compliance, which can reach up to the greater of AU$16.5 million or 10% of annual turnover, signaling the government’s commitment to high-stakes enforcement.
Context
Prior to this draft, the Australian digital asset sector operated primarily under an incomplete regulatory regime where crypto exchanges were largely only required to comply with Anti-Money Laundering and Know Your Customer (AML/KYC) requirements, creating significant legal ambiguity for consumer protection and operational resilience. This limited oversight, which treated crypto businesses differently from traditional financial intermediaries, contributed to market failures and consumer losses, necessitating a systemic update to align the sector with established financial services laws. The existing challenge centered on the lack of a clear legal classification for digital assets and the absence of prudential and conduct standards for platforms that custody client funds.
Analysis
This framework is a critical architectural update to the compliance function, requiring regulated entities to integrate a full AFS license-level compliance program into their operations. The most immediate impact is the need to implement rigorous client asset segregation, cybersecurity safeguards, clear risk disclosures, and internal dispute resolution processes, moving beyond basic AML controls. Firms must now satisfy ASIC’s ‘fit and proper’ person test and maintain adequate financial resources, directly affecting capital requirements and corporate governance structures. For many existing platforms, this will necessitate a complete overhaul of internal controls and a significant investment in compliance personnel to meet the same regulatory standards governing traditional investment portfolio operators.
Parameters
- Primary Regulator → Australian Securities and Investments Commission (ASIC) will be the main licensing and oversight body.
- Maximum Penalty → AU$16.5 million, three times benefit obtained, or 10% of annual turnover for severe breaches.
- Licensing Threshold → Platforms holding less than AU$5,000 per customer and under AU$10 million annually are exempt.
- Consultation Deadline → October 24, 2025, for industry feedback on the draft legislation.
Outlook
The consultation period ending on October 24, 2025, represents the final opportunity for industry stakeholders to shape the technical standards of the framework before final legislation is expected later in 2025, followed by a 12-month transition period. This move aligns Australia with international standards, particularly referencing the EU’s MiCA and Singapore’s Payment Services Act, setting a precedent for a global convergence toward comprehensive, activity-based regulation. The imposition of traditional financial licensing standards will likely accelerate consolidation in the Australian market, favoring well-capitalized firms capable of meeting the new compliance and operational overhead, while simultaneously increasing institutional trust and capital inflow.
