ASIC Proposes Key Updates for Australia's Crypto Industry

Today the Australian Securities and Investments Commission (ASIC) unveiled proposed updates to Information Sheet 225 (INFO 225), a pivotal regulatory document for the digital asset industry together with Consultation Paper CP 381. First introduced in 2019, INFO 225 has long served as a reference for crypto businesses navigating Australia’s complex regulatory landscape. However, with the rapid evolution of digital assets, many industry participants have felt left in the dark and have called upon the regulator for clearer, more comprehensive guidance on how existing laws apply to crypto businesses and how the regulator intends to address new challenges and opportunities.

The Long Wait for Clarity

The crypto industry has faced years of uncertainty under outdated regulatory frameworks. Since the release of INFO 225, significant changes have reshaped the global digital asset landscape, including the rise of decentralized finance (DeFi), stablecoins, and tokenized assets. Without clear guidelines, businesses operating in this dynamic environment have struggled to ensure compliance while fostering innovation.

ASIC’s proposed updates to INFO 225 aim to close this gap, providing much-needed clarity. The new guidelines expand on the classification of digital assets as financial products, outline when financial services laws apply, and address the role of digital asset exchanges in the broader financial system.

Key Proposed Changes

ASIC’s updates include:

• Terminology Update: The term "digital assets" replaces "crypto-assets" to reflect the broader scope of the industry, including stablecoins, utility tokens, and tokenized assets.

• Clarification on Financial Products: Expanded guidance on when digital assets may qualify as financial products under the Corporations Act 2001, potentially triggering licensing, conduct, and disclosure obligations. Digital assets are more likely to be classified as financial products if they involve investment-like features or rights. 

• Financial Services Scenarios: Detailed examples of activities like issuing, dealing, or advising on digital assets that constitute the provision of financial services.

• Market Infrastructure Oversight: Circumstances where digital asset exchanges might be classified as financial market infrastructure, leading to additional regulatory requirements.

• Alignment with Legislative Reforms: Acknowledgment of ongoing reforms, including anti-money laundering laws and other legislative developments impacting digital asset service providers.

Clarity around specific tokens is: 

• Exchange Tokens: May be financial products if marketed as investments or bundled with services like staking.

• Staking Services: Classified as financial products if they involve pooled funds or guaranteed returns.

• Stablecoins: Non-yield-bearing stablecoins may trigger licensing as non-cash payment facilities, while yield-bearing stablecoins are likely to be treated as investment products.

• Wrapped Tokens: May be classified as derivatives due to their redemption rights and price correlation with underlying assets.

• NFTs: Generally not financial products unless marketed for speculative investment or linked to financial benefits.

• Tokenized Assets: Likely financial products if they represent legal claims or rights over real-world assets (e.g., gold, real estate).

• Meme Coins: Not financial products unless bundled with investment-like schemes.

• Tokenized Tickets: Not financial products unless tied to additional rights or speculative investment features.

• Contracts for Difference (CFDs): Clearly classified as financial products requiring compliance with derivative regulations.

• Bundled Arrangements: Bundling digital assets with additional features increases the likelihood of classification as financial products.

A History of Legal Challenges

The lack of regulatory clarity has led to significant legal disputes in Australia and globally. Last bullmarket (2021/22), notable projects like FTX, Celsius, and Terra collapsed spectacularly, triggering a cascade of lawsuits and investigations in their wake. Following on and from these watershed moments, in Australia the crypto industry has been subjected to either a rigorous clean up or witchhunt by ASIC, depending on your perspective. 

In 2022 Qoin (BPS Financial) faced off against ASIC who sued it, alleging unlicensed conduct and misleading representations regarding its non-cash payment facility. Quoin lost. In 2023 Kraken Exchange (Bit Trade) defended ASIC’s civil proceedings for failing to comply with design and distribution obligations related to its margin trading product. In 2024 it too lost. In 2022 ASIC sought to take down Block Earner and Finder, for offering crypto-related products without licenses, and in Finder’s case, failing to comply with product disclosure and design and distribution obligations concerning its crypto-asset product, Finder Earn. This year Block Earner copped an L. The Federal Court found that its products were in fact financial products and it in turn required a license. However in Finder’s case the Court found that their product was not a debenture, and ASIC lost this important case. In 2023 ASIC filed a case against eToro, alleging non-compliance with design and distribution obligations for its high-risk contract for difference (CFD) products. ASIC claimed that eToro's target market for CFDs was overly broad, and the onboarding process was insufficient to determine whether the product was appropriate for retail clients.That case is ongoing. ASIC has also investigated and intervened in and after the collapse of MyCryptoWallet and ACX exchanges, securing travel restraints against directors in respect of ACX directors. 

These actions reflect ASIC's undeniable commitment to enforcing compliance within the crypto industry, aiming to protect consumers and maintain market integrity. They also underscore the necessity for crypto businesses operating in Australia to adhere strictly to financial regulations, including obtaining appropriate licenses and ensuring transparent and accurate representations of their products and services.

What This Means for the Industry - Cautiously pessimistic

While ASIC’s proposed updates to INFO 225 aim to provide much-needed regulatory clarity, many in the industry remain skeptical about the regulator’s support for fostering a thriving crypto ecosystem in Australia. Critics argue that ASIC’s approach, particularly its advocacy of the market operator license regime as the licensing pathway for exchanges, may force consolidation, stifle innovation and ultimately drive talent and projects offshore.

The market operator license regime is two tiered, tier 1 being reserved for mammoth listed securities, derivatives and managed investment exchanges such as the ASX and Chi-X, whereas tier 2 licenses are offered to smaller forex, bonds and commodities and unlisted securities exchanges such as CBoe, FincClear and Liquidity Cube.  Historically, the market operator license regime s has not been embraced by Australia’s crypto industry and for good reason. License application timelines are unclear and run from many months into years, legal costs run into the 6 figures and rumoured sale prices for the rare license exceed 100M. The license regime is seen as prohibitively expensive and complex, with no clear benchmarks for what is required to meet licensure standards for crypto businesses that fall within its scope. 

With only the largest exchanges with significant resources and market share expected to meet the threshold compliance requirements and associated fees to obtain and maintain a license, this may result in market consolidation, allowing only a few players to dominate. For smaller operators and startups, the high cost of a market operator license could effectively force them out of the Australian market, and with them, the smaller players in the web3 ecosystem who fear regulatory purgatory, law suits and more. Many may either cease operations or relocate to more crypto-friendly jurisdictions, such as Singapore or Dubai, where regulatory frameworks are clearer, less costly, and better tailored to the needs of emerging technologies.

The exodus of talent and projects would represent a missed opportunity for Australia to position itself as a leader in the global digital asset space. Instead of fostering innovation and attracting investment, the current trajectory could result in a less competitive market, stifling the development of cutting-edge projects and weakening Australia's standing in the rapidly evolving web3 economy. As it stands, Australia has already experienced a substantial exodus of web3 talent, from lauded regulatory doyenne Chloe White formerly of Treasury, to Michael Bacina, a celebrated crypto legal expert. For the industry to thrive, a balanced approach that protects consumers while nurturing innovation is essential. Without it, the promise of Australia as a hub for blockchain innovation may remain unrealized.

As the crypto industry continues to mature, ASIC’s updated INFO 225 could serve as a cornerstone for a more robust and transparent regulatory framework, paving the way for sustainable growth in Australia’s digital economy IF it is combined with a sensible approach to regulating responsible crypto businesses. We remain cautiously pessimistic about the future. ASIC must demonstrate that it intends to support compliance-first businesses in the crypto sector. 

Ape Law: Guiding Clients Through Regulatory Changes

At Ape Law, we understand that navigating regulatory updates like ASIC’s proposed changes to INFO 225 can be complex and critical for the success of crypto businesses. With a deep understanding of Australian financial regulations and a specialization in the digital asset industry, we support clients in interpreting these updates and ensuring compliance with evolving laws. 

Our team provides tailored legal advice to businesses operating in Australia’s crypto space, helping them:

• Understand how the classification of digital assets as financial products may impact their operations.

• Evaluate licensing, disclosure, and conduct obligations under the Corporations Act 2001.

• Navigate scenarios where their activities may constitute financial services.

• Assess the implications of regulatory requirements for digital asset exchanges and infrastructure.

We’re here to ensure that our clients remain ahead of the curve in this transformative regulatory environment. Whether you’re launching a new token, running an exchange, or looking to raise capital, Ape Law offers the expertise and strategic guidance needed to thrive in Australia’s evolving digital asset landscape.

Contact us today to learn how we can support your business in leveraging these updates for long-term success.