Australia plans reforms to tackle digital wallets and cryptocurrency regulations

Australia is set to introduce new regulatory proposals focused on cryptocurrency, buy now pay later (BNPL) and digital wallets, warning that if the country doesn’t bring in the reforms, it will be Silicon Valley that determines the future of its payments system.

The country’s treasurer Josh Frydenberg stated that Australia’s regulatory architecture needs to adapt, with greater strategic direction needed from the government. The current regulatory framework governing the payments system has remained largely unchanged over the last 25 years.

By mid-2022, the government aims to have set out a strategic longer-term plan for the payments system and settled details of additional powers for the treasurer to set payment system policy.

It is also looking to determine the changes necessary to modernise the payments system legislation to accommodate new and emerging payment systems, including BNPL platforms and digital wallets, like Google Pay and Apple Pay.

When it comes to cryptocurrency, the government is aiming to have completed a consultation on the establishment of a licencing framework for digital currency exchanges to provide greater confidence in the trading of crypto assets and to have received advice from the Council of Financial Regulator on the underlying causes and policy responses to the issue of de-banking.

By the end of 2022, the government aims to have settled the framework to replace the current one-size-fits-all payment licensing arrangements with a functionality based framework adopting graduated, risk-based regulatory requirements.

It will have also received a report from the Board of Taxation on an appropriate framework for the taxation of digital transactions and assets and received advice from the Treasury and the Reserve Bank of Australia on the feasibility of a retail Central Bank Digital Currency (CBDC) in Australia.

“This is a substantial and complex body of work that will cement Australia’s position as a global finance and technology hub, locking in our economic recovery and setting Australia up for next year and well beyond,” said Frydenberg.

The reserve banks of Australia, Singapore, Malaysia, and South Africa are currently testing the use of CBDCs for international settlements in the hopes that it will reduce the time and costs for these types of transactions. The project, named Dunbar, aims to develop a prototype shared platform for cross-border transactions using multiple CBDCs.