Australian Crypto Exchanges Face Stricter Oversight Under Draft Legislation

Introduction

Australia has unveiled draft legislation to tighten oversight of crypto exchanges, bringing digital asset platforms under the same rules as traditional financial services. The proposal, described by Assistant Treasurer Daniel Mulino as the cornerstone of the government’s digital asset roadmap, would create two new financial products under the Corporations Act: “digital asset platforms” and “tokenized custody platforms.” Providers would need to obtain an Australian Financial Services License (AFSL) and register with the Australian Securities and Investments Commission (ASIC), moving beyond today’s AUSTRAC registration that covers many basic crypto exchange operations. The draft targets key activities such as wrapped tokens, staking, and public token infrastructure, aiming to boost consumer protection and market integrity.

The draft law introduces a suite of obligations tailored to the unique characteristics of digital assets, including standards for custody and settlement, with heavy penalties for breaches—up to AU$16.5 million, three times the benefit gained, or 10% of annual turnover. Smaller, “low-risk” crypto platforms holding less than AU$5,000 per customer and facilitating under AU$10 million annually would be exempt, aligning with approaches used for non-cash payment facilities. Importantly, the legislation does not impose new rules on crypto issuers or on non-financial uses of crypto, focusing instead on exchange-level regulation to legitimize compliant operators and shut out bad actors.

Major crypto exchanges operating in Australia, including Swyftx, OKX, Crypto.com, and Kraken, broadly support the draft regulation, citing improved certainty for investors and institutions under the AFSL regime. Industry leaders emphasized the importance of enforcement that prevents unregulated players from undercutting licensed operators, while warning against one-size-fits-all rules that could stifle competition or innovation. The Treasury has opened consultations on the draft until Oct. 24, seeking stakeholder feedback before finalizing the bill. (Cointelegraph)

Background

Australia has taken a major step toward tightening oversight of the cryptocurrency industry. A newly released draft bill would bring crypto exchanges, custody providers, and staking services under the same regulatory regime as traditional financial institutions. The proposed legislation is being positioned as the cornerstone of the Albanese government’s digital asset roadmap, aiming to increase consumer protection while providing greater clarity for businesses.

What the Draft Law Proposes

Currently, most crypto exchanges in Australia are only required to register with AUSTRAC (Australian Transaction Reports and Analysis Centre), the government’s anti-money laundering watchdog. While AUSTRAC tracks suspicious activity and enforces basic compliance rules, it does not fully oversee how exchanges operate or safeguard customer funds.

Under the draft legislation, this will change. Two new categories of financial products would be introduced under the Corporations Act:

• Digital Asset Platforms – exchanges that facilitate crypto transactions, token trading, and related services.

• Tokenized Custody Platforms – specialized custodians that store digital assets on behalf of clients.

Both types of providers would be required to obtain an Australian Financial Services License (AFSL) from the Australian Securities and Investments Commission (ASIC), aligning crypto oversight with the broader financial sector. This means exchanges will face stricter standards for custody, settlement, reporting, and risk management.

Assistant Treasurer Daniel Mulino emphasized that this approach balances innovation with regulation, noting that “failures of digital asset businesses have highlighted consumer risks, particularly where operators pull and hold client assets without consistent safeguards.”

Key Features: Penalties, Exemptions, and Consumer Protection

The penalties for non-compliance are significant. According to the Treasury’s press release, breaches could lead to fines of up to AU$16.5 million (US$10.8M), three times the financial benefit gained, or 10% of annual turnover—whichever is greater.

However, the legislation also makes allowances for small-scale or “low-risk” crypto platforms. Exchanges holding less than AU$5,000 per customer and facilitating under AU$10 million annually would be exempt from the strictest licensing requirements. This exemption mirrors existing financial services law for small non-cash payment facilities, ensuring that startups and community-level projects are not unfairly burdened.

The bill also addresses staking services, wrapped tokens, and public blockchain infrastructure, areas that have raised both innovation opportunities and regulatory risk. By creating tailored rules for these activities, the government aims to accommodate the unique needs of decentralized finance (DeFi) without stifling technological advancement.

Industry Response and Global Context

Australia’s crypto industry has largely welcomed the draft bill. Executives from exchanges such as Swyftx, OKX, Crypto.com, and Kraken praised the proposal for striking a balance between consumer protection and business certainty. As Swyftx CEO Jason Titman explained, “our industry should not be frightened of high standards.”

Global comparisons show Australia is following a similar path to other major jurisdictions. The European Union’s Markets in Crypto-Assets (MiCA) framework—set to come into force in 2024—introduces wide-ranging licensing requirements for exchanges, stablecoin issuers, and custodians. Meanwhile, the United States continues to debate whether regulation should be handled by the SEC, CFTC, or dedicated new agencies, resulting in what many experts describe as “regulation by enforcement.”

Industry leaders argue that Australia’s consultative approach—the Treasury has invited feedback on the draft until October 24, 2025—creates a more predictable environment for innovation. Kraken’s Australia managing director Jonathon Miller agreed, but cautioned against a “one-size-fits-all” framework that could unintentionally harm smaller innovators.

What This Means for Investors and Businesses

If passed, the law would reshape the Australian crypto market in several ways:

1. Greater Investor Confidence – Licensed exchanges under ASIC oversight could attract more institutional investors and mainstream adoption.

2. Higher Standards of Custody and Settlement – Exchange failures like FTX highlighted the risks of poorly managed customer funds. Stronger local rules aim to prevent repeat scenarios.

3. Clear Path for Innovation – By recognizing staking, tokenized assets, and DeFi infrastructure within a legal framework, the draft law attempts to future-proof regulation without shutting down growth.

4. Costs of Compliance – Exchanges will face higher legal and operational costs, which may lead smaller players to consolidate or exit. On the flip side, those that adapt could gain long-term credibility.

Looking Ahead

Australia’s draft bill represents a pivotal moment for crypto regulation in the Asia-Pacific region. By aligning digital asset markets with established financial laws, the government hopes to filter out bad actors while creating a safer, more sustainable ecosystem for investors.

As global regulators converge on stricter oversight, the Australian approach could provide a model for balanced crypto regulation—one that acknowledges both the risks of speculative trading and the potential of blockchain technology to transform finance.

Stakeholders, from large exchanges to retail traders, now have until October 24, 2025 to provide input before the legislation moves toward its final form.