Australia Moves to License Crypto Exchanges and Custodians
Australia is preparing to overhaul the regulation of its digital asset sector with a draft bill that would force crypto exchanges and custodians to obtain financial services licences for the first time. The Treasury Laws Amendment (Regulating Digital Asset, and Tokenised Custody, Platforms) Bill 2025, released for consultation this week, marks a decisive shift towards bringing the industry under the same rules that govern mainstream financial services.
The reforms target platforms that hold or safeguard assets on behalf of clients, whether cryptocurrencies, stablecoins, or tokenised versions of physical and intangible assets such as gold or securities. Treasury said the new framework is designed to close long-standing gaps, reduce uncertainty, and ensure Australians can participate in the market with confidence.
“Repeated failures of major platforms, both overseas and in Australia, show the need for stronger safeguards to protect consumers and ensure market integrity,” Treasury noted in its explanatory materials.
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Defining the Building Blocks
At the heart of the bill are three new legal definitions. A digital token is described as a digital object that can be exclusively controlled and transferred. A digital asset platform (DAP) is any arrangement where an operator holds such tokens on behalf of clients, while a tokenised custody platform (TCP) covers situations where an operator holds underlying assets, such as bullion or bonds, and issues tokens that represent a right to redeem them.
These arrangements will be treated as financial products under the Corporations Act 2001 and the ASIC Act, meaning operators will require an Australian Financial Services Licence (AFSL).
The focus on custodial services reflects Treasury’s consultations, which found that custody-based models pose the highest risks. Problems identified include frozen withdrawals, assets commingled with providers’ own funds, undisclosed proprietary trading, weak governance, and theft, both by insiders and through cyberattacks.
Obligations and Safeguards
Licence holders will be subject to the same overarching duties as traditional financial service providers: acting efficiently, honestly and fairly; managing conflicts of interest; maintaining adequate financial resources; and having in place compensation arrangements for retail clients.
The draft legislation also introduces platform-specific rules:
Minimum standards for asset holding, transaction, and settlement functions.
A requirement for operators to publish platform rules governing client conduct.
Tailored disclosure obligations, including a DAP/TCP Guide to replace traditional product disclosure statements.
ASIC will have enforcement powers, while the Minister will be able to prohibit certain transactions or exempt platforms in particular circumstances.
Exemptions and Thresholds
Not all operators will fall within the regime. Platforms with less than $10 million in transactions over a rolling 12-month period will not need an AFSL. Nor will businesses whose digital asset services are incidental to their main, non-financial business.
Public blockchain infrastructure, intermediated staking, and some wrapped tokens will also sit outside the licensing requirement.
International Alignment
The government has deliberately aligned its approach with peers in the European Union and the United Kingdom, adopting the principle of “same activity, same risk, same regulation.” The explanatory memorandum highlights guidance from the Financial Stability Board and IOSCO, which have pushed for consistent global standards on market integrity, investor protection, and systemic risk.
Industry Implications
For exchanges and custodians, the most immediate impact will be the need to secure licences and comply with ASIC supervision. While this is likely to raise compliance costs, Treasury argues that regulatory certainty will provide long-term benefits.
Banks and fintechs are expected to benefit from a clearer environment in which to launch tokenised deposits, programmable payments, and regulated wallets. Start-ups could build tokenisation services or decentralised finance platforms without fearing regulatory whiplash. Institutional investors, meanwhile, will gain confidence that custody of tokenised securities or commodities is safeguarded to the same standard as traditional assets.
The reforms are also pitched as a way to attract global firms. By reducing the scope for regulatory arbitrage, Canberra hopes to position Australia as a credible hub for digital asset innovation.
Knock-on Effects in the AFSL Market
One immediate consequence of the draft law is likely to be pressure in the secondary market for Australian Financial Services Licences (AFSLs). For years, AFSLs have traded at a modest premium, with prices varying according to the authorisations attached. But the requirement for digital asset exchanges and custodians to come under the AFSL regime could change that calculus.
Demand is likely to surge as exchanges that have operated without a licence scramble to secure one before the transition window closes. That could spark a wave of acquisitions of existing AFSL holders, particularly those with authorisations broad enough to cover custodial and market-making activities in digital assets.
Market participants suggest licence-holding firms that are already dormant or underutilised could see their valuations jump. Where AFSLs with straightforward authorisations have historically changed hands for six-figure or seven figure sums, industry observers speculate that crypto demand could lift prices several multiples, especially if supply is constrained by ASIC’s processing timelines.
This dynamic mirrors earlier episodes in financial services, where regulatory shifts transformed licences from bureaucratic necessities into valuable, tradeable assets. In practice, that could mean a parallel market in licence transfers, with exchanges weighing whether to pursue a new application or buy their way into compliance through acquisition.
For investors, it adds a speculative layer: AFSLs themselves may become a proxy bet on the future of Australia’s digital asset sector.
Transition Period
The new regime will come into force 12 months after Royal Assent, giving firms a year to adjust. Transitional provisions in the bill set out how AFSL obligations will be phased in.
A Balancing Act
For years, Australia’s crypto sector has operated in a grey zone, with participants unsure whether their activities fell under existing financial product definitions. This lack of clarity has limited innovation and left consumers exposed. The proposed framework seeks to resolve that tension: applying established financial safeguards to custody while avoiding a wholesale redefinition of digital assets.
Whether it succeeds will depend on execution. Industry groups are expected to push back on compliance burdens, while consumer advocates will demand strong enforcement. What is clear is that Canberra has chosen to bring crypto firmly into the fold of financial regulation.
As the explanatory memorandum puts it: these reforms are “intended to provide clarity by shifting the regulatory focus to holding arrangements and applying the custodial framework, with adjustments for digital assets, to better manage risks than relying solely on existing financial product definitions.”
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