Australia’s ASIC proposes function-based crypto regulation, diverging from EU’s MiCA and US enforcement

Australia’s corporate regulator is pushing a new direction in cryptocurrency oversight that could reshape how digital assets are governed.

The Australian Securities and Investments Commission (ASIC) has proposed regulating crypto activities based on the financial functions they perform rather than the technology powering them.

The proposal comes as governments worldwide struggle to balance innovation in blockchain technology with investor protection.

Under ASIC’s approach, digital assets that function like traditional financial products such as securities, payment instruments.

Australia’s function-based crypto regulation strategy

At the center of the policy debate is ASIC’s belief that financial regulation should focus on the economic role of an asset rather than the technology used to build it.

In practical terms, this means digital assets will be assessed according to the services they provide.

If a token behaves like a share offering or investment contract, regulators could treat it like a traditional security.

Similarly, stablecoins used for payments could fall under payment-service regulations. The regulator argues that many crypto projects already mirror activities common in traditional finance.

Token issuers sometimes raise capital from investors in a manner similar to companies selling shares or bonds.

Meanwhile, certain platforms offer financial contracts allowing traders to hedge price risks, functions comparable to derivatives markets.

Because of these parallels, ASIC believes that existing financial laws may already apply to many digital asset services.

The regulator has also issued guidance documents explaining how crypto-related activities could fall under Australia’s financial services framework.

According to Alan Kirkland, clearer licensing rules can help protect investors while still allowing innovation.

“Licensing ensures consumers receive legal protections and enables ASIC to take action when poor practices cause harm.” Kirkland said in regulatory guidance on digital asset financial products.

Focus on platforms, custody risks, and investor protection

Beyond classification of tokens, regulators are increasingly concerned about how crypto platforms handle customer funds.

Many exchanges and digital asset platforms hold users’ assets, manage wallets, and offer lending or yield-generating services.

These intermediary activities rather than the underlying blockchain technology often present the biggest risks to investors.

If a platform mismanages client funds or becomes insolvent, users could lose access to their assets.

As a result, ASIC has emphasized stronger oversight of custody arrangements, governance structures, and operational stability among crypto service providers.

The regulator has also identified cryptocurrencies, artificial intelligence, and digital payment systems as key financial risks requiring heightened oversight in the coming years.

To address these concerns, Australia is working on legislative updates such as the Corporations Amendment (Digital Assets Framework) Bill 2025.

Under the proposal, companies operating trading platforms or holding digital assets on behalf of customers may need licenses similar to those required for traditional financial service providers.

Diverging from global crypto regulatory models

Australia’s approach contrasts sharply with regulatory models emerging in other major jurisdictions.

In the European Union, lawmakers introduced the comprehensive Markets in Crypto-Assets Regulation (MiCA), which establishes a dedicated legal framework specifically for digital assets and crypto companies.

Meanwhile, regulators in the United States including the U.S. Securities and Exchange Commission have largely relied on enforcement actions and court rulings to determine whether particular crypto assets qualify as securities.

Australia’s model sits somewhere between these approaches. Instead of building an entirely new system like the EU, the country is attempting to adapt existing financial laws to cover crypto activity where appropriate.

Supporters say the strategy could reduce regulatory loopholes and provide clearer expectations for businesses and investors.

However, critics warn that relying on existing legislation may create uncertainty if digital assets do not fit neatly into traditional legal definitions.

The challenge is compounded by the global nature of blockchain networks. Many digital asset platforms operate across multiple jurisdictions simultaneously, making enforcement difficult.

Despite these challenges, policymakers believe a gradual integration of crypto into existing regulatory frameworks may offer a pragmatic path forward.

If the approach proves effective, analysts say Australia could provide a blueprint for other countries still struggling to determine how best to regulate digital assets while encouraging innovation.