Crypto exchanges to require AFSL licences 

The Federal Government has released draft legislation that will bring cryptocurrency exchanges and custody platforms under the Australian Financial Services Licence (AFSL) regime, marking a substantial shift in how digital asset platforms are regulated in Australia.  

The reforms are designed to improve investor protection within an emerging sector as some platforms have ineffective risk management as well as being largely unregulated in Australia. It aims to strengthen governance and align crypto with the standards already applied to traditional financial services. 

Bringing crypto in line with AFSL is expected to create consolidation within the sector and targets crypto exchanges rather than at the token level.   

Key changes 

• New categories under the Corporations Act 2001 will recognise digital asset platforms (DAPs) and tokenised custody platforms (TCPs) 

• These entities will be required to obtain an AFSL and meet obligations consistent with traditional financial service providers 

• The draft framework sets out obligations relating to custody, settlement, tokenisation, staking, governance, disclosures and consumer protection standards 

• Significant penalties will apply for operating without a licence, with some exemptions proposed for smaller operators 

What the draft law proposes 

The proposed changes amend the Corporations Act 2001 to introduce two new categories of financial service providers: 

1. Digital Asset Platforms (DAPs): Operators of trading platforms for crypto assets. 

2. Tokenised Custody Platforms (TCPs): Custodians of digital assets on behalf of clients. 

Entities falling into these categories will be required to: 

• hold an AFSL, with obligations largely aligned to those already imposed on traditional financial services providers. 

• implement and maintain controls for custody and settlement of digital assets. 

• comply with requirements on tokenisation, staking, governance, disclosures and consumer protection. 

• submit to ASIC oversight, including reporting obligations and enforcement measures. 

The regime proposes threshold exemptions for smaller operators. For example, platforms with client holdings below $5,000 per person or with annual transaction values under $10 million may not need to hold a licence. However, these exemptions are tightly defined and will not apply to most exchanges operating at scale. 

Penalties for non-compliance 

The penalties set out in the draft legislation are significant. Operating without an AFSL could attract fines up to $16.5 million, or a percentage of turnover or profit derived from unlicensed activities. This brings crypto regulation into line with other parts of the financial services sector where strong deterrence measures apply. 

Implications for the industry 

For many crypto exchanges and custodians, this will be the first time they are required to meet obligations such as: 

• annual and continuous reporting to ASIC. 

• preparation of audited financial statements in line with Australian Accounting Standards. 

• maintenance of sufficient financial resources to comply with licence conditions. 

• demonstration of effective internal processes, controls and governance frameworks. 

• the draft legislation also highlights areas of focus for regulators, including consumer protection, asset segregation, valuation of digital assets, cyber security, and the robustness of custody arrangements. 

Audit considerations 

The changes carry significant implications for AFSL audits. Crypto entities will be required to obtain assurance over governance structures, custody processes and financial resource requirements. Auditors will need to assess the operating effectiveness of internal controls, review the accuracy of financial projections, and test compliance with both the AFSL framework and guidance such as GS003 issued by the Auditing and Assurance Standards Board.  

There will also be an increased focus on digital asset risks, transparency, and the robustness of control environments. For many operators who have not previously prepared financial statements under Australian Accounting Standards, complex financial reporting matters are likely to arise which will require a high level of skill and experience in the sector to address. 

How can SW help?  

We recommend that organisations begin preparing now by assessing whether the regime applies to their business, reviewing current practices against the proposed obligations, and developing compliance plans well ahead of implementation. Engaging advisors early will be key to identifying gaps and reducing the risk of non-compliance, while staying across ongoing consultation and ASIC guidance will be essential as the regulatory detail develops. 

SW has a dedicated financial services team that advises cryptocurrencies, banks, fund managers, superannuation providers and brokers, and we meet regularly to share insights on emerging regulatory issues and industry trends. Our focus is on conducting efficient audits that address the risks of material misstatement, ensure compliance with Australian Accounting Standards, and provide clear reporting on governance and control effectiveness in line with GS003. 

With extensive experience in AFSL audits, our team is ready to help digital asset businesses understand and prepare for the new licensing environment. 

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