AUSTRALIA Trends and Developments Contributed by: Steven Pettigrove, Katrina Sharman, Luke Higgins and William Deeb, Piper Alderman
Consensus activities are defined within the scope of “public digital token infrastructure” as protocols that permit any person to contribute to the integrity, func- tionality and reliability of the infrastructure by conduct- ing activities involving the transmission, processing and recording of electronic records. The arrangement must also confer concrete benefits on the beneficiary, such as earlier redemption, partici- pation despite insufficient holdings, protection against operational losses or lower transaction costs. Public digital token infrastructure Public digital token infrastructure, under Section 9E of the Corporations Act, will be exempt from classifica- tion as a financial product or clearing and settlement facility if it meets the following conditions: • it is used for the transmission, processing or recording of electronic records that are digital tokens or in relation to digital tokens; • the protocol is open source and operates in a non- discretionary manner; • anyone can contribute to the system’s integrity, functionality and reliability by contributing data without needing permission; and • the protocol does not rely on any participant hav- ing a role so critical that the transmission, process- ing or recording of electronic records cannot occur without that participant. Wrapped tokens A narrow exemption under Section 765E of the Cor- porations Act permits persons to disregard redemp- tion rights when considering whether something is a financial product, in limited circumstances. Given the breadth of ASIC’s approach to applying the concept of a derivative to wrapped tokens, as evidenced in INFO 225, this exemption may have limited application. The exemption applies where: • a wrapped token is created in relation to a related asset (which could be a digital asset or a real-world asset under a tokenised custody platform); • the token is issued under a tokenised custody plat- form or held through either decentralised wrapping software or public digital token infrastructure; and
• the holder of the wrapped token has a right to redeem or direct delivery of the related asset. The exemption does not apply to financial products in which the rights or interests attached to the wrapped token are not equivalent to those in the underlying asset. Decentralised wrapping software, in relation to a wrapped token, has been defined in this section as software through which the asset associated with the wrapped token is held and the software would be con- sidered a tokenised custody platform if the actions it performs were instead carried out by an operator within the meaning of subsection 761GD(1) of the Corporations Act. Those actions include creating the wrapped token and holding the related asset for or on behalf of, the person who possesses the wrapped token. “Incidental” and “low-value” exemption The “incidental” exemption, under Section 911A(2)(jb) of the Corporations Act, excludes businesses whose interaction with DAPs or TCPs is ancillary to a primar- ily non–financial business, such as merchants accept- ing digital asset payments or offering access to third- party tokenisation platforms as a minor component of their operations. In addition, the Bill introduces a “low-value” exemp- tion under Section 911A(2)(ja) of the Corporations Act for platforms with annual transaction volumes below AUD 10 million, reflecting a policy intent to avoid unduly burdening early-stage start-ups and scaling businesses. AML/CTF Reforms: VASP Transition In parallel, the amended AML/CTF Act replaces the legacy DCE regime with a Financial Action Task Force- aligned VASP framework administered by AUSTRAC, significantly expanding the range of regulated virtual asset activities. Although the two regimes are designed to operate in tandem (while regulating separate concepts – ie, financial services vs money laundering and terrorism financing), the DAF Bill introduces “digital assets” under the Corporations Act, while the reformed AML/
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