Australia Introduces Crypto Custody Bill with Severe Penalties for Violations

Australia is tightening regulations for crypto exchanges and custody providers through new legislation aimed at ensuring stricter oversight and imposing significant penalties for breaches in asset protection.

Key Takeaways:

Australia has launched its first comprehensive regulatory framework for crypto custody and exchange platforms.
The proposed bill mandates that crypto firms obtain an Australian Financial Services License (AFSL) and submit to supervision by the Australian Securities and Investments Commission (ASIC).
Lawmakers believe these reforms will enhance productivity while ensuring better protection for investors.

The government asserts that these reforms could potentially unlock approximately $24 billion in annual productivity gains, all while bolstering protection for Australians who choose to entrust their digital assets to private platforms.

On Wednesday, Treasurer Jim Chalmers and Financial Services Minister Daniel Mulino introduced the Corporations Amendment (Digital Assets Framework) Bill 2025, marking the establishment of the country's first complete regulatory framework for entities that handle crypto on behalf of customers.

Australia Introduces Crypto Custody Bill With Heavy Penalties for Breaches

Progress of Australia’s Crypto Bill

The bill successfully passed its first reading in Parliament and quickly moved to a second reading, initiating discussions on its main principles before undergoing detailed scrutiny.

In their joint statement, the ministers emphasized, "We take Australia’s crypto industry seriously," noting that blockchain and digital assets offer substantial opportunities for the Australian economy, financial sector, and businesses.

This legislation follows a Treasury consultation that began in September, which Mulino has previously described as the "cornerstone" of the government's digital asset strategy.

While the local crypto industry largely welcomed the draft bill, many participants requested simpler regulations and clearer definitions.

Core Elements of the Bill

Central to the legislation is a significant overhaul of licensing requirements. Crypto exchanges and custody providers will need to secure an AFSL, placing them under the regulatory oversight of ASIC.

The framework introduces two new license categories: “digital asset platform” and “tokenized custody platform,” which reflect the distinct roles companies play in managing and transferring customer funds.

Mulino indicated that the reforms focus on companies that manage customer assets “rather than the underlying technology,” cautioning that "it's currently possible for a company to hold an unlimited amount of client crypto without any financial safeguards."

New Custody and Disclosure Protocols for Crypto Firms

According to the bill, licensed companies will be obligated to adhere to ASIC standards regarding transactions, settlement processes, and asset custody.

Additionally, these platforms must provide customers with a service guide that details fees, risks, and the management of assets.

Smaller operators will benefit from leniency; businesses with an annual transaction volume below A$10 million (or $6.5 million) will be exempt, as will companies whose crypto activities are secondary to non-financial services.

The legislation includes an 18-month grace period before the licensing rules take effect, a transition intended to assist compliant companies as they adapt.

This bill is anticipated to pass through the House, where the Labor Party, under Prime Minister Anthony Albanese, holds a significant majority.

The greater challenge lies ahead in the Senate, where Labor may require support from crossbenchers and opposition members to implement these reforms.

In addition, last month, Home Affairs Minister Tony Burke declared that new legislation will be introduced to regulate crypto ATMs, labeling them as “high-risk products” associated with money laundering and child exploitation.

Meanwhile, the Australian Securities and Investments Commission (ASIC) has dismantled over 14,000 scam and phishing websites since July 2023, with fraud related to cryptocurrencies constituting 20% of these removals.