Australia regulates Crypto Assets custodial services! A heavy fine for violators releasing 24 billion in productivity.

Australia strengthens regulation of cryptocurrency exchanges and custodial service providers for cryptocurrencies, legislating a commitment to impose stricter oversight and severe penalties for misconduct in asset protection. Treasurer Jim Chalmers and Minister for Financial Services Daniel Mulino introduced the “2025 Company Law Amendment (Digital Asset Framework) Bill,” requiring Australian cryptocurrency companies to hold an Australian Financial Services License (AFSL) and comply with the regulations of the Australian Securities and Investments Commission (ASIC).

Australia's first complete regulatory framework for Crypto Assets custody

Treasurer Jim Chalmers and Financial Services Minister Daniel Mulino presented the Corporations Amendment (Digital Assets Framework) Bill 2025 on Wednesday, which establishes Australia's first comprehensive regulatory framework for companies holding crypto assets on behalf of clients. This is a milestone moment for the regulation of crypto assets custody in Australia, marking the country's shift from a regulatory vacuum to a clear legal framework.

The legislation was introduced after the Ministry of Finance launched a consultation in September, which Mulino had previously described as the “cornerstone” of the government's digital asset roadmap. The time from consultation to legislation was only about 2 months, demonstrating the Australian government's high emphasis on and rapid advancement of the custody regulation of Crypto Assets. This kind of fast legislation is not common in the traditionally cautious Australian regulatory system.

The ministers stated in a joint statement: “We place great importance on Australia's Crypto Assets industry,” adding that blockchain and digital assets “bring tremendous opportunities to our economy, financial services, and businesses.” This statement indicates that the Australian government’s stance on Crypto Assets is “regulation rather than prohibition,” aiming to promote industry development while protecting investors.

The bill will immediately enter the second reading after passing the first reading in Parliament, starting with a debate on its core principles, followed by a detailed review. The bill is expected to pass in the House of Representatives, where Prime Minister Anthony Albanese's Labor Party holds an absolute majority of seats. More challenging competition will unfold in the Senate, where the Labor Party may need the support of independent and opposition members to implement the reforms.

Although the local industry generally welcomes the draft, some participants are calling for simpler rules and clearer definitions. This feedback indicates that while the crypto industry supports regulation (as compliance frameworks provide legal certainty), it hopes that regulation will not be overly complex or costly, so as not to stifle innovation.

Key Points of Australia's Crypto Assets Custody Bill

AFSL License Requirements: All custodial service providers must obtain a Financial Service License.

ASIC Regulation: Accepts comprehensive regulation by the Australian Securities and Investments Commission.

Two New Licenses: “Digital Asset Platform” and “Tokenized Custody Platform”

18-Month Grace Period: Provides businesses with a transitional period to achieve compliance.

Small Business Exemption: An annual trading volume of less than 10 million AUD is exempt.

AFSL Licensing System and Two New License Types

The core of the bill is a comprehensive reform of the licensing system. Crypto Assets exchanges and custodians of Crypto Assets will be required to obtain an Australian Financial Services License (AFSL), thereby subjecting them to the regulation of the Australian Securities and Investments Commission (ASIC). The AFSL is the core regulatory tool for the Australian financial services industry, and traditional financial institutions such as banks, brokers, and asset management companies are all required to obtain this license. Including the custody of Crypto Assets within the AFSL system means that crypto enterprises will be subject to the same regulatory standards as traditional financial institutions.

The framework introduces two new license categories: “Digital Asset Platform” and “Tokenized Custody Platform,” reflecting the different roles companies play in holding and transferring customer funds. Digital Asset Platforms mainly refer to crypto asset exchanges that provide trading matching and asset custody services. Tokenized Custody Platforms focus on the custody of emerging assets such as tokenized securities and RWA (Real World Assets). These platforms typically do not offer trading functions and are solely responsible for secure custody.

Mulino stated that the goal of these reforms is to control the companies that hold customer assets, “not the underlying technology.” He warned that, “Currently, a single company can hold an unlimited amount of customer crypto assets without any financial legal protections.” This regulatory vacuum has also led to disasters in other countries, with the collapse of FTX being the most typical example. FTX misappropriated customer assets for high-risk investments, eventually resulting in customer losses of billions of dollars when it collapsed. Australia’s new legislation is precisely aimed at preventing similar tragedies from happening again.

According to the bill, licensed companies must comply with ASIC standards regarding trading, settlement processes, and asset custody. The platform must also provide customers with a service guide that outlines fees, risks, and asset management methods. These requirements are consistent with the regulatory standards of traditional financial institutions, ensuring the transparency and reliability of cryptocurrency custody services.

Small operators will receive more lenient treatment. Companies with an annual trading volume of less than 10 million AUD (6.5 million USD) will be exempt, and businesses that engage in crypto assets activities only as an ancillary part of their Financial Service will also be exempt. This exemption design avoids over-regulation that stifles small innovative enterprises, seeking a balance between protecting investors and promoting innovation.

18-month grace period and 24 billion USD economic benefit

The bill includes a grace period of 18 months before the licensing rules take effect, Murino stated, in order to facilitate the transition for compliant companies. The 18-month period is sufficient for existing businesses to complete the following compliance tasks: apply for an AFSL license, establish a compliance team, implement KYC/AML procedures, adjust technological infrastructure, train employees, and prepare regulatory reports.

This grace period design shows that the Australian government seeks a balance between strict regulation and promoting innovation. Immediate enforcement could lead to a rush of businesses closing or relocating to other jurisdictions, damaging Australia's position as a Crypto Assets hub. The 18-month grace period gives businesses enough time to adapt and also provides regulators time to refine implementation details.

However, this also means that the next 18 months will become a “trial period” for the Australian Crypto Assets industry. At that time, unlicensed businesses will face enforcement actions, while licensed businesses will need to undergo continuous regulatory scrutiny. This watershed moment may lead to a reshuffling of the industry, with large compliant companies gaining market share, while small or non-compliant businesses exit the market.

The government stated that the proposed reforms could unleash productivity growth of up to $24 billion per year, while strengthening protections for Australians who entrust private platforms to manage digital assets. $24 billion is an astonishing figure, equivalent to about 1.5% of Australia's GDP. This estimate may be based on the following logic: A regulatory framework provides legal certainty → Attracts more institutions and businesses to adopt blockchain technology → Enhances the efficiency of financial services → Reduces transaction costs → Promotes innovation → Overall economic benefits reach $24 billion.

This economic benefit forecast provides legitimacy for regulation. If regulation is merely restrictive and punitive, the industry will strongly oppose it. However, if regulation can unleash significant economic value, the industry will be more willing to accept it. The Australian government's strategy emphasizes the “empowering” role of regulation rather than its “restrictive” role.

Fraudulent Website Cleanup and Criminal Penalties

At the same time, since July 2023, the Australian Securities and Investments Commission (ASIC) has shut down over 14,000 scam and phishing websites, with cryptocurrency-related scam websites accounting for 20% of the total closures. This means that approximately 2,800 cryptocurrency scam websites have been shut down, indicating a serious scam problem in the Australian crypto market.

Last month, Interior Minister Tony Burke announced upcoming legislation to regulate cryptocurrency ATMs, describing them as “high-risk products” associated with money laundering and child exploitation. This characterization is extremely severe, directly linking cryptocurrency ATMs to serious crimes. Due to their anonymity and cash transaction characteristics, crypto ATMs are indeed used for money laundering and other illegal activities. Australia's regulatory actions demonstrate its zero tolerance approach towards crypto crime.

From the perspective of enforcement strength, Australia's regulation is not just empty talk. The closure of 14,000 websites demonstrates that ASIC has actual enforcement capabilities and resources. Cryptocurrency custodial service providers that violate regulations may face penalties including: license revocation, hefty fines, criminal prosecution, and civil liability. Although the bill does not specify the exact fine amounts, referencing other penalty violations under the AFSL system, fines could reach millions of Australian dollars or even higher.

For crypto businesses operating in Australia, this bill provides a clear compliance pathway, but it also increases operational costs. Applying for and maintaining an AFSL license requires significant manpower and financial investment, including compliance personnel, legal advisors, audit fees, system upgrades, and more. Small businesses may find it difficult to bear these costs and may ultimately choose to exit the market or be acquired by larger companies.

From the perspective of global regulatory trends, Australia's approach is in line with the EU's MiCA, Hong Kong's licensing system for virtual asset trading platforms, and Singapore's PSA licensing system. Major economies are establishing clear regulatory frameworks for the custody of Crypto Assets, marking the end of an era of unregulated growth, with compliant operations becoming the new norm.

Frequently Asked Questions

When must Australian crypto businesses obtain a license?

There is an 18-month grace period after the bill takes effect, during which businesses must complete their AFSL license applications and compliance preparations. Failure to obtain a license after the grace period will result in severe penalties.

Do small crypto businesses also need a license?

Companies with an annual trading volume of less than 10 million AUD (6.5 million USD) can be exempted, and businesses that conduct cryptocurrency custody activities solely as an ancillary business to non-financial services can also be exempted.

What penalties will be faced for violations?

Although the specific penalty amounts of the bill have not been announced, referring to the penalty standards under the AFSL system, it may include license revocation, fines of millions of Australian dollars, criminal prosecution, and civil liability.

Why does Australia need to regulate the custody of Crypto Assets?

Currently, the company can hold an unlimited amount of customer Crypto Assets without any legal protection. ASIC has shut down over 2,800 crypto scam websites, and the regulation aims to prevent disasters like the misappropriation of customer assets in the FTX case.

How to unleash 24 billion dollars of productivity?

The regulatory framework provides legal certainty, attracting institutions to adopt blockchain technology, improving the efficiency of Financial Service, reducing transaction costs, and promoting innovation, with an expected annual economic benefit of 24 billion USD.

Can the bill pass?

The House of Representatives has a high likelihood of passing (the Labor Party has an absolute majority), but the Senate needs support from independent members and opposition parties. The industry generally welcomes it but hopes to simplify the rules, which may be modified during the deliberation.