AUSTRALIA Trends and Developments Contributed by: Steven Pettigrove, Katrina Sharman, Luke Higgins and William Deeb, Piper Alderman
creates a unique digital token for each asset. Posses- sion of the token gives the holder the right to redeem or direct delivery of the underlying asset, where the operator holds that asset as trustee or bailee or is otherwise obliged to act on the token holder’s instruc- tions. The operator may also be authorised to manage or take actions in relation to the asset on the holder’s behalf. A person becomes a client of the platform by accept- ing its terms and opening an account, regardless of how the token was initially acquired. The definition is therefore capable of capturing a wide range of tokenisation and custody models, from simple holding arrangements to more active management structures. Importantly, the legislation expressly clarifies that a TCP cannot itself be a DAP, which is a point of struc- tural clarification sought by industry during consulta- tion. Licence authorisations under the DAF Act Consistent with ASIC’s guidance in Information Sheet 225: Digital assets: Financial products and services (INFO 225), it is likely that additional AFSL authorisa- tions will be required to operate a DAP or TCP where dealing in or providing advice about, an underlying digital asset or cryptocurrency that is a financial prod- uct. Token-by-token assessments will not go away. Instead, the DAP or TCP authorisation serves as a platform wrapper, required wherever an operator holds a token or tokenised asset on behalf of a client. Depending on the nature of that asset or arrangement, the platform operator may require additional authori- sations in order to operate their business. For exam- ple, a securities authorisation is still required to deal in a tokenised stock. However, even if the platform deals only in non-financial products (eg, Bitcoin), an AFSL is still required to offer custody or asset tokenisation. Digital Tokens Under Section 761GB of the Corporations Act, the definition covers an electronic record that one or more persons can control. Control is generally taken to mean factual control rather than legal control. A person is considered to have control, whether alone or jointly with one or more other persons, if they can transfer the record, exclude others from doing so and
demonstrate that ability. Regulations may also pre- scribe or exclude certain electronic records. The definition of “possession” in Section 86 of the Corporations Act has been significantly varied to demonstrate its specific meaning in relation to digital tokens. Where a person factually controls an elec- tronic record, the person possesses the digital token in question, unless the exception in that provision applies. The exemption may exclude some (but not all) non-custodial arrangements. For example, some 2-of-2 private key arrangements may still be compro- mised when the user does not have unilateral control over the assets. The general meaning of possession is otherwise preserved in the Corporations Act for things other than digital tokens. An addendum to the explanatory memorandum pub- lished with the legislation clarifies that mere posses- sion is insufficient; digital tokens must be possessed on behalf of another person. The addendum further indicates that a third party serving solely as a tech- nology service provider is not intended to be caught,, even if it holds a private key shard under a multi-party computation arrangement. Key-Carve-Outs and Exclusions The legislation introduces targeted exemptions for certain blockchain infrastructure and related activi- ties. Specifically, the exemptions cover custodial stak- ing arrangements, public digital token infrastructure, wrapped tokens, “incidental” and “low-value” activi- ties. Custodial staking arrangement Custodial staking arrangements, under Section 9F of the Corporations Act, are exempt from classification as financial products where: • the beneficiary and the operator agree to an arrangement using a DAP; • the operator is allowed to use the beneficiary’s digital tokens for consensus activities (as opposed to staking generally); and • any rewards earned from consensus activities (rather than staking), after fees, are passed onto the beneficiary.
30 CHAMBERS.COM
Powered by FlippingBook