Australia's securities regulator proposed tougher operating standards for cryptocurrency exchanges and custodians ahead of a new licensing regime next year.
The Australian Securities and Investments Commission (ASIC) released a consultation package on Oct. 15 outlining stricter requirements to protect customer assets, execute trades, manage conflicts of interest and maintain adequate financial reserves.
The proposals would bring crypto exchanges and tokenized custody platforms under safeguards comparable to those governing traditional financial institutions, expanding regulatory oversight of businesses that hold and trade digital assets on behalf of customers.
The changes implement Australia's Corporations Amendment (Digital Assets Framework) Act 2026, enacted in April and taking effect in 2027. Under the legislation, affected businesses must obtain an Australian financial services license or secure additional authorization under an existing license.
ASIC Commissioner Alan Kirkland said the framework reflects the growing integration of digital assets into mainstream finance.
“Our proposed guidance and standards acknowledge the increasing role of digital assets and tokenization, including in traditional parts of the financial system,” Kirkland said.
He added that the regulator is seeking to align Australia with comparable international jurisdictions while encouraging investment and innovation without weakening consumer protections.
The proposed changes would impose greater responsibility on exchanges for customer funds and trading activity. Platforms would need to maintain adequate records, safeguard and segregate client assets, disclose material custody risks and establish controls against market misconduct.
They would also face restrictions on trading against customers and requirements to assess tokens before listing them, potentially forcing operators to review existing trading arrangements and the assets available on their platforms.
The overhaul comes as demand for regulatory authorization rises. ASIC said it has recorded more than 140 applications for digital asset-related financial services under its existing framework, including over 110 submitted during a transitional regulatory relief period that ended in September.
One of the most consequential proposals concerns the financial resources exchanges must maintain to continue operating.
Under the first of three models outlined in Consultation Paper 392, operators that do not qualify for a third-party custody concession would need net tangible assets of at least A$14 million or 10% of average revenue, whichever is greater.
Platforms using qualifying independent custodians could face a substantially lower starting requirement of A$200,000. However, the actual threshold would be the highest of that amount, 0.5% of average underlying asset value (capped at A$7 million), or 10% of average revenue.
That disparity could encourage smaller exchanges to outsource custody rather than commit millions of dollars to meeting capital requirements themselves.
The concession would require platforms to place all underlying assets with qualifying external custodians and obtain written assurances about their financial position, generally supported by independent audit reports.
Operators would remain responsible for overseeing those arrangements, creating additional compliance obligations even when another company holds customers' assets.
ASIC's second proposed model would reduce the capital floor to A$7 million for operators whose platforms hold only assets not classified as financial products. Platforms holding financial products would remain subject to the higher threshold.
A third model would set a starting floor of A$2 million, with additional requirements linked to asset holdings, revenue, and activities such as brokerage, trading venue operations, and dealing directly with clients.
The alternatives could produce significantly different costs for smaller companies seeking licenses, while larger operators may be better positioned to absorb the financial burden and retain their existing custody operations.
Beyond capital, ASIC wants exchanges to strengthen safeguards governing how they manage customer holdings.
The regulator proposes quarterly reporting of crypto wallet arrangements and addresses, stricter reconciliation of customer assets, and controls over how platforms use entrusted assets.
Operators would also need express customer authorization before using underlying assets in permitted arrangements and would need to maintain protections for client interests in the event of insolvency.
On trading, the regulator proposes best-execution requirements for certain intermediaries, including access to at least two adequate liquidity sources. Exchanges would face restrictions on trading as principal on their own platforms, subject to specified exemptions, and would be prohibited from accepting incentives to favor particular tokens.
Another provision would prevent financial services licensees from counting certain stablecoins issued, controlled or held by themselves or related entities toward regulatory capital requirements. ASIC argues that such holdings may fail to provide reliable financial protection if the issuing business encounters difficulties.
The proposals would still permit overseas custody arrangements, allowing exchanges to use international service providers rather than requiring customer assets to remain in Australia.
ASIC is seeking industry feedback on the competitive effects and compliance costs of its proposed standards before finalizing the rules. Submissions close on Nov. 27, with final guidance and regulatory instruments expected in March 2027.
