Crypto asset secondary service providers: Licensing and custody requirements

Key takeaways: Crypto asset secondary service providers: Licensing and custody requirements (Consultation Paper) 31 March 2022

The Federal Government released the “Crypto asset secondary service providers: Licensing and custody requirements” Consultation Paper on 21 March 2022 to gauge the public’s response to the potential imposition of licensing and custody requirements on crypto asset secondary service providers (CASSPrs).

Key regime changes:

• “CASSPrs” will be defined, as well as the application of ASIC’s definition of “crypto assets” across all regulatory frameworks
• Implementation of a new CASSPr licensing regime, which would contain mandatory obligations largely similar to those existing under the existing AFS licensing regime
• Implementation of mandatory custody obligations on CASSPRs who maintain custody of crypto assets.

Currently, there is no intention for service providers to meet both the AFS licensing obligations and CASSP obligations.

The government is also considering alternative regulatory measures such as self-regulation or by extending s764A of Corporations Act to capture all crypto assets as financial products.

Given the broad definition of crypto assets, the question remains whether the proposed changes will effectively address the current difficulties of defining whether certain crypto assets are financial products. However as a precursor, a non-exhaustive list of various types crypto assets with different functionalities is set out in the Consultation Paper for preliminary consultation to determine whether certain types of crypto assets should be categorised as financial products, crypto assets or other types of product services of assets. These include (among others) utility, collectables, asset-backed, governance or hybrid crypto assets.

The Consultation Paper is open to the public for submission and feedback and will close on 27 May 2022.