Australian Treasury Proposes Licensing Regime for Digital Asset Custody Platforms ∞ Regulation

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Briefing

The Australian Treasury released the exposure draft of the Treasury Laws Amendment Bill, which introduces a comprehensive regulatory framework for digital asset platforms and tokenised custody platforms, mandating that operators obtain an Australian Financial Services Licence (AFSL). This action immediately transforms the legal landscape for all entities providing custodial services for client digital tokens in the jurisdiction, replacing a patchwork of existing guidance with a single, dedicated licensing regime under the Corporations Act 2001 (Cth). The primary consequence is the systemic integration of key digital asset activities into the traditional financial regulatory architecture, with the draft Bill having been released on September 25, 2025, initiating the formal legislative process.

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Context

Before this draft legislation, the Australian digital asset sector operated under significant legal ambiguity, relying on the incidental application of existing financial services laws and non-binding guidance from the Australian Securities and Investments Commission (ASIC). The prevailing compliance challenge centered on the custody function, where platforms holding client assets were often unregulated unless the underlying asset was deemed a financial product. This created a critical regulatory gap, particularly concerning client asset segregation, operational resilience, and governance standards, leaving retail and institutional clients exposed to platform insolvency risks. The new framework directly addresses this by defining and regulating the platform and custody activities themselves, independent of the underlying token’s classification.

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Analysis

The legislation requires a fundamental architectural update to compliance frameworks for all digital asset platforms that hold client tokens custodially. Obtaining an AFSL necessitates implementing robust risk mitigation controls, including enhanced capital adequacy, rigorous cyber resilience protocols, and audited client asset segregation systems. The chain of effect is direct ∞ platforms must now operate with the same high-level governance and reporting standards as traditional financial licensees, which significantly increases the cost of compliance but simultaneously de-risks the market for institutional adoption. This is a critical update because it shifts the regulatory focus from the nature of the asset to the function of the service provider, thereby creating a clear, auditable path to regulatory legitimacy.

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Parameters

Legislation Status ∞ Exposure Draft Bill released September 25, 2025.
Core Legal Instrument ∞ Australian Financial Services Licence (AFSL).
Affected Law ∞ Corporations Act 2001 (Cth) ∞ The Bill amends this Act to include the new licensing regime.
Primary Requirement ∞ Platforms holding client tokens custodially must secure an AFSL.

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Outlook

The immediate next phase is the industry consultation period, where stakeholders will provide feedback that could shape the final legislative text, particularly around the prescriptive operational and capital requirements. This move establishes a significant precedent for other jurisdictions considering a functional approach to digital asset regulation, where the activity (custody) is regulated regardless of the asset (token) classification. Second-order effects will include market consolidation, as smaller entities unable to meet the AFSL’s capital and compliance burdens exit the market, leading to a more institutionally-viable and secure digital asset ecosystem in Australia.

The Australian Treasury’s draft Bill institutionalizes digital asset custody, setting a global benchmark for systemic risk mitigation and mandatory financial services licensing.

financial services license, custodial services, digital asset platforms, tokenized custody, regulatory gaps, corporate governance, client asset protection, risk mitigation controls, Australian jurisdiction, DLT regulation, compliance framework, financial product law, retail client disclosure, market structure, legislative reform, operational requirements, licensing regime, consumer protection, financial reporting, corporate act Signal Acquired from ∞ allens.com.au