New crypto rules aim to protect Aussie investors

Last week, the Federal Government released draft legislation to regulate Australia's cryptocurrency industry - a pivotal moment to safeguard the investments of everyday Australians, while supporting the overarching growth of the sector.

For too long, digital assets such as crypto have grown faster than the regulatory frameworks designed to protect investors and consumers. The fallout from the collapse of global exchanges like FTX, where billions in client assets were lost due to poor governance, is a stark reminder of what's at stake when regulatory gaps are left unaddressed.

The draft legislation sets out to require crypto businesses to follow the same rules as banks and other financial companies. These businesses must get an Australian Financial Services Licence (AFSL) and will be watched by the Australian Securities and Investments Commission (ASIC), Australia's corporate regulator. The policy isn't about the cryptocurrencies themselves, but about the companies that hold and manage them for customers.

This change is designed to prevent unregulated companies from moving large amounts of crypto without proper checks or protections.

It also ensures any business holding crypto on behalf of clients will face clear licensing, disclosure, and conduct rules. These include minimum standards for custody (and how assets are stored) and plain-English risk disclosures so investors know exactly what they're signing up for.

Building confidence: Advisers and investors

A significant impact of the draft legislation is the clarity for financial advisers and their clients. Until now, advisers have been largely unable to recommend or facilitate crypto investments due to regulatory uncertainty. This has left many Australians, especially those who rely on professional advice, unable to access cryptocurrency safely, even as self-directed investors and SMSFs have jumped in on their own.

By treating crypto like any other financial product, these new measures allow advisers to support clients who want access to crypto, allowing them to provide holistic advice about all their current and future investments. Advisers will be able to assess, recommend and monitor crypto allocations with the same rigour as other investments, ensuring clients' interests are protected and their portfolios are properly diversified.

This regulatory clarity also unlocks the door for larger investors like superannuation funds. With the new framework, these investors can participate with confidence, knowing that platforms are licensed, assets are securely stored and consumer protections are in place. This is likely to accelerate the mainstream adoption of crypto, driving greater innovation and economic growth here in Australia.

Custody is critical: Lessons from FTX

The new, purposeful legislation is undoubtedly a good thing.

At the heart of the reforms is a simple but powerful message: proper custody processes are non-negotiable for protecting everyday Australians who invest in crypto. Put simply, custody is the process of holding and managing assets on behalf of investors and ensuring that it is done safely. The draft law mandates that firms must comply with new minimum standards of custody for asset-holding, transaction, and settlement functions, a positive step towards protecting investors.

This means crypto companies must follow strict standards set by ASIC. If they break these rules, they can be fined. The companies must also keep customers' money separate from their own, have clear records and make sure customers' assets are not mixed with the company's money or used for the company's own trading.

At CloudTech for example, we use a combination of offline and online asset storage, to ensure the cryptocurrency is accurately attributed to the investor and can be withdrawn at any time. This directly tackles the failures seen in the collapse of FTX, where poor custody, misuse of customer funds and a lack of transparency led to catastrophic losses for investors.

For consumers, these new processes will certainly lead to increased protection for their investments. However, making the framework more black and white will reduce the need for court decisions to outline what is right and wrong and that is something we will push for during the consultation process.

A platform for growth

Importantly, these reforms aren't just about risk. They're about making Australia a serious player in global digital finance.

By leveraging existing industry standards, the proposed rules provide a familiar and robust framework for businesses, while leaving room for innovation. Smaller platforms with limited activity are set to be exempt from the full regulatory burden, ensuring that creativity and competition are not restricted.

With clear rules, Australia can attract global investment, talent, and partnerships, while supporting local start-ups and established players to build the next generation of financial infrastructure. As super funds and institutional investors gain confidence to invest, the benefits will spread across the economy.

The focus now is on how quickly Australia can establish frameworks so everyone can invest in crypto safely. Public consultation on the draft legislation is open until late October and we hope to see it enter Federal Parliament in early 2026.

Mandy Jiang is the executive director and CFO of CloudTech Group

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