Safety — it is one of the biggest concerns for both investors and regulators when it comes to crypto. Searching 'is crypto safe?' in Google returns 1.48 billion results. While a search for 'when was Bitcoin created?' yields 795 million results.
Despite it being 13 years since Bitcoin (CRYPTO: BTC) was created, the safety of cryptocurrency markets remains a key focus. This spurred forth a committee led by New South Wales senator, Andrew Bragg, to investigate the need for an improved regulatory framework.
Now, crypto exchanges operating in Australia could be set for a shakeup. One that is intended to create a safer environment for both consumers and the economy.
Crypto market makers to be held to a higher standard
The Bragg report distilled its findings down to 12 recommendations. Already, the government and industry participants have shown support for the new potential regulations. With the first recommendation targeting crypto markets at their core — exchanges.
Firstly, the report recommends cryptocurrency exchanges be held accountable to capital adequacy, auditing, and responsible person tests by introducing a crypto market licence regime.
In other words, exchanges would need to meet minimum standards of spare capital to reduce the risk of financial collapse. A reality all too real for customers of local exchanges myCryptoWallet and ACX. Both fell into the hands of liquidators late last year.
Bragg thinks more stringent standards for exchanges could see operators fall from over 450 to around 20 to 30. However, with tens of millions of dollars passing through these entities of the 'Wild West' per day, that's a tradeoff Bragg considers justifiable.
In discussing the proposed regulations, Andrew Bragg said:
[Cryptocurrency exchanges] wouldn't face the same level of obligation as the ASX, but a new market licensee would meet stringent tests for capital adequacy, responsible persons as well as auditing rules, control frameworks and product disclosure requirements.
Could it discourage innovation?
While senator Bragg has spoken to industry participants that are advocating for market licences, not everyone is on board. Some are concerned such new policies could stifle innovation and push it offshore.
On this topic, Kraken managing director for Australia, Jonathon Miller stated:
Australia has built a reputation for being a crypto-savvy and friendly jurisdiction which goes a long way to ensuring crypto businesses remain onshore in Australia. This is something that the 'traditional' technology businesses of Australia have struggled to do.
Onerous regulation such as market licensing and/or crypto-asset custody/deposit regime could risk driving these innovative businesses offshore, repeating the mistakes of the past when it comes to encouraging local innovative businesses onshore.
Despite the concerns, the Cyber Security Industry Advisory Committee is also pushing for more safeguards at the exchange and customer level.