Stirling & Rose submission to the Australian Treasury consultation paper on Crypto Asset Secondary Service Providers: Licensing and Custody Requirements
Our Recommendations for Responsible Regulation
1. Crypto assets that are financial products should be regulated by the Corporations Act, even while having Novel Features versus other products.
2. A legislative audit, including the Personal Property Securities Act, should properly recognise crypto assets across Federal & State legislation
3. A holistic digital regime should address the Responsible Machine Problem
Responsible regulation should properly define crypto financial products and their regulatory treatment. We believe this should form part of a holistic digital regime and not an ad hoc inclusion to the existing legislation
Responsible and innovative regulation of crypto assets by the Australian Government will only be effective if we understand that crypto assets belong to a new and increasingly ubiquitous global asset class.
When is a crypto asset likely a financial product?
A financial product depends on an object’s practical use over time rather than (only) its design and intended use-case at the time of launch. Crypto assets that are likely to be financial products include those which:
- Are used as a store of value or means of account
- Have value accrual
- Replicate the functions of financial products (such as derivatives and securities)
Why do people get tripped up by the novel features?
Crypto assets can change state. They comprise a broad church of programmable assets that can change in any number of parameters, including state, size, data retention, transferability, integration mechanisms, rights and obligations.
What is the BIGGER, responsible machine problem?
All existing legislation is predicated on rights, responsibilities (custody), and penalties for noncompliance to ultimately be placed on or with a ‘person’, not a machine or an algorithm. If there is no responsible ‘person’ in a decision system, we have a Responsible Machine Problem.
Although a crypto asset cannot point to a responsible person, this should not justify the absence of regulation today. A clear example of legislative decisions that will ultimately revolve around this problem is the regulation of decentralised autonomous organisations (DAOs).
The Responsible Machine Problem will need to be addressed by the government many times over the next decade and will impact all areas of the law.
Read the full submission for our detailed legal response and commentary. If you’re interested in further discussion or have any questions, we welcome you to contact any of our team members who would be glad to assist.