Senator Bragg talks Crypto & Web3 Regulation
Interview with Senator Andrew Bragg
Senator Andrew Bragg is a politician who has engaged with the Web3 community and has strong views on what needs to be done in terms of regulating the Crypto, Token & Web3 world. He has introduced a private members bill which he hopes will become law. It includes regulations regarding licensing of:
- Digital Asset Exchanges
- Digital Asset Custody Services
- Stablecoin Issuers
Transcript
| Nick Abrahams | Ladies and gentlemen, regulation is a critical issue right at the moment, everyone’s talking about a proposed FTX and I’m delighted today to welcome on the show an Australian politician who has been at the forefront not only in Australia but globally around what we should be doing with the regulation of crypto currency, digital assets and so forth. So Senator Bragg welcome to the podcast. |
| Senator Bragg | G’day Nick. |
| Nick Abrahams | so just jumping into it, you know you’re one of the very few Australian politicians who has really leaned into the crypto NFT and Web3 world. It’s, it’ you know it’s a world that’s…it’s reasonably complex, it’s also sort of a bit mired in fraud and other things. Sort of what brought you interested…interest into this space? |
| Senator Bragg | Well I mean basically Josh Frydenberg said to me what do you know about crypto and I said look not a lot and neither of us was sure whether it was good or bad so I went into the senate enquiry which I’ve shared back in 2021 with quite an open mind and I guess I came out of it with a view that their technology was potentially quite positive in that it could disrupt existing industries and provide people with more choices and options and well prices I guess. Of course I was aware of the reputational issues that came with the sector and I’m not spruiking any particular product or offering in my role, but certainly I think the technology has utility and that, that remains my view. So we ought to harness that for two reasons – firstly to provide those new options but also for risk management. |
| Nick Abrahams | Right, right, so protecting our people and in terms of, are there sort of specific opportunities that you think sort of exist for Australia in that Web3 space, have we…based on what you’ve seen do you think we’ve got a you know decent role to play in the Australian ecosystem? |
| Senator Bragg | Well I think Australia has a series of natural advantages here, I mean with it’s [##] economy, we have a significant financial sector, we’ve proven ourselves to be successful in mainstream technology and it’s a great place to live, it’s a great place to start a business so there’s some natural advantages. Clearly the [##] group has though with the sector of evolution, but when I say sector I mean keeping pace with technology, its keeping pace with the development of new ideas. So you need to have tax regulation that’s going to promote your competitive position so ultimately if you do that you’ll have more jobs, you’ll have better choices for your citizens. But it’s challenging, it’s a challenging thing to try and do. I think we try to make the best of it when we were in government. I think the new government is finding it’s quite difficult. |
| Nick Abrahams | Yeah. It’s a, it’s a funny balancing act that you’ve got there with regulation of this space. Because on one view there’s the idea of oh you don’t want to stymy innovation and then on the other view you know you don’t want fraudsters getting away with things and we saw that I think with the internet early on you know in the late 90’s it was pretty much free reign and in fact you know it was very regularly light for the first sort of decade or so we seem to obviously you know big companies really gained the benefit of that and how do you, how do you see that tension you know from a government point of view with laws around this, potentially going don’t want to stymy innovation but want to make sure that we’ve got you know the right regulatory setting? |
| Senator Bragg | Well I mean the starting point is clearly you can’t have regulatory arbitrage, I mean you can’t have a whole financial sector which has you know huge amount of pervasive regulation and then you have no, no regulation elsewhere where there are things that are looking more and more like financial products. So you can understand have a reasonable…you can’t have regulatory arbitrage – that’s the first point. And that goes to everything in the internet, I mean you can’t have regulation in the real world and you know not have regulation of the internet. So apart from that you’ve just got to be prepared to put [##] on the table I think, the countries that have been able to do that, so such as the US State of Wyoming or in the UK, they’ve been already attract capital and are building themselves up as digital…building themselves up as digital asset hubs already. So I think you want to try and apply the road rules which exists in the real world as much as possible. |
| Nick Abrahams | Yeah and I think that’s probably what we’ve seen but sort of in the…in the general internet space where there was you know in the early days of the internet there was a oh we’ll need specific laws for the internet and there will be global internet laws and so forth which of course never happened. So as much as possible I guess we can use what we’ve got. I’m wondering how does this sort of all work in your mind because another thing that we’ve wrestled with in the internet space is how do you regulate organisations that aren’t located in your geography and then it takes it one step further in the current situation with crypto and so forth where with some of the truly deregulated platforms and [##] and so forth, you know arguably there’s no individual, there’s no sort of responsible entity anywhere and so it’s operated on code and so forth, I mean how do you…how do you think about that when trying to promulgate regulation? |
| Senator Bragg | We shouldn’t be trying to set in place anything that’s too ambitious on a global scale because you need to lock down some domestic laws to start with. I mean once you’ve done then you can try and collaborate, I mean I’ve had a number of discussions with US senators including Senator [#Ramas#] from Wyoming about how we might be able to collaborate. I think once Australia has…so for example…once Australia has its own laws on digital assets, and I think we’re in a position to be able to try and work with our colleagues abroad, I think given the nature of the economic and security implications of these matters now you know it would make sense for us to start with the natural reference we have around the five eyes and the AUCUS and the Quad perhaps and try and agree on some common definitions and standards and you know then in the future you might even have some sort of passporting regime or mutual recognition that comes into place here. So I think that’s my view on…which is the same point you just made about the internet regulation, I mean you need to regulate the domestic arrangements first and then perhaps you can try and agree on some common standards and build on that – you want to do the first part and then beyond that I think it’s you also want to see some regulatory competition and so I think if we are able to maintain, I mean we’ve now had 6 months since the Australian Federal election and not much progress has been made on actually implementing a policy that were announced before the last election. If we were able to keep pace with the policy that had been announced, I mean we would’ve been one of the first one countries that would’ve bedded down you know detailed digital asset laws. |
| Nick Abrahams | Yeah. Yeah. And getting into that, because I mean you’ve obviously been a great proponent of regulating the States in a reasonable way and you introduced that private members bill into parliament in September 2022 to regulate certain aspects of crypto, maybe if we drop a bit into the detail of that, because I think right at the moment post FDX there’s sort of a cry across the world of we need to regulate this and that’s easy said but you’ve actually gone to the trouble of figuring out how you actually do it and you know with your private members bill, maybe we start off with so I think there’s sort of three key areas, but maybe we start off with sort of how you see regulation of digital asset exchanges. |
| Senator Bragg | Well my view was you wouldn’t try and regulate every single token individually, you’d try and regulate the gatekeeper, again drawing on financial regulation principles here. So you’d regulate the market, you’d regulate the broker, you’d regulate the market maker I guess and they would have a licencing arrangement that would get that particular purpose which would include [##] person tests, governance risk management, segregation of customer accounts, auditing, so and so forth. You’d also have, I mean in the Australian context, I mean I’m not…you wouldn’t do it for every function but you’d have to have some functions onshore, or at least if not a function you’d have to have, you’d have to have an individual or a board…you have to have something. |
| Nick Abrahams | Yeah. |
| Senator Bragg | In order to get an Australian licence. So that was the main idea. Now if we’d had that in place and FDX was a regulated Australian licensee, I mean there would have been segregation of customer account so if they were complying with the law then their custom money would not have been, would not have been able to bleed into the you know the corporate accounts for example. |
| Nick Abrahams | Yeah. |
| Senator Bragg | I think that’s a compelling reason to do it. So that bill goes to a range of other things as well, but certainly in relation to putting down a…in an Australian part the way I think of it is when you go to the beach you have two flags, those at controlled beaches, you know in effect that’s what you’d be getting if you had an Australia licence to crypto market – you’d be getting some consumer protection because you’d have, look you would have the corporate regulator standing behind it – I mean this is still no guarantee that everything’s going to be safe but certainly you’d have a guarantee of there being a regulator sitting behind it and behind that regulator you’ve got a parliament, parliament committees trying to focus on, trying to understand how effective the law enforcement is. And at the moment we’re running a separate enquiry into Australia’s corporate regulator ASIC into how effective it is at enforcing our laws. |
| Nick Abrahams | Yeah and so can you talk to about sort of with digital asset exchanges, so capital adequacy and so forth? |
| Senator Bragg | Yeah well I think in terms of capital adequacy I mean you’d have to set, you’d have to set a bar which was reasonable so that people – well the organisation that wanted to seek the licence – has to have a reasonable sum of capital aside in Australian dollars in an Australian bank so that there was you know like an operational risk reserve, a sum of money there for problems that may emerge. Now the level of that we need to do some more consultation over, but the reality is there are hundreds of very lightly regulated digital currency exchanges in Australia today and you know you might go down to a few dozen if there was a capital adequacy requirement enacted by the parliament and you don’t want to have it at a level which is going to deter innovation, but you’ve got to accept the fact that there is a cost of regulation and the cost of the regulation is that not everyone will be in business tomorrow. |
| Nick Abrahams | Yeah, yeah. And I think what we’ve seen is you know as you’ve mentioned earlier, there’s been a shadow financial services system and [##] up and it’s been largely unregulated environments and so this is really just about saying you know getting back to that foundation stone that you’re talking about around you know if it is in financial services then they shouldn’t get a regulatory free ride just because it’s sort of notionally on the internet, so forth. So maybe then, so another area that is problematic, if we think about digital assets and so crypto is obviously one of those but more and more I think we’re seeing with NFT technology this concept of a digital asset, whether it’s you know digital collectable or whatever, so the concept of digital assets is starting to become more well understood and more widespread and more are being held by Australians. But it’s hard for this business to grow because right at the moment custody, you know people that should take it off into a hard wallet that has a whole range of issues for it and you won’t get mainstream adoption with hard wallets and so forth. So can you talk a little bit about how you see, or how your bill deals with the digital asset custody side of things? |
| Senator Bragg | Well the custodian would have to have all the security around the holding of the digital assets in a way that would pass muster, I mean the details of which would be subject to some regulations but I mean basically the principle would be that you know lifestyle custody of other people’s assets in the same way that a custodian holds assets that are in the physical world, so in that sense it’s quite simple. I mean there are the protocols that are hot and cold [##] and the like which are unique perhaps to this sector. But I mean the idea of having domestic custody in [##] is contested. I mean I’ve met with people who said that it will never happen, I’ve met with others who’ve said well you know it could happen. The reality is that we need to have some custody laws in place for safekeeping. Now I don’t mind if the custody is held in the United States or in Britain or in Singapore – it doesn’t worry me, I’m not a protectionist, but I think we want to, we want to protect consumers at the first level which is the need to have the custodial laws. The second part is an economic factor I guess for Australia – there’s no question though that Australia will have successful crypto markets, but it remains to be seen whether or not there would be domestic custody industry – certainly in terms of the physical custody industry that you see supporting the managed funds and the pension fund sector in Australia, that’s been very successful, partly because of the size and the distortions of compulsory savings laws, but you know maybe there’s a way that that can be drawn upon. |
| Nick Abrahams | Yeah, yeah. I mean it’s been an area that we’ve done a reasonable amount of work in terms of you know custody arrangements and so forth, I think if ultimately we say that crypto will go mainstream then you know funds have to be involved in that in terms of investing in it and funds are only going to get involved if there’s a mature custody regime in place. So it does seem like an area and I hear you on the idea of you know maybe it’s not an Australian opportunity but you know as we’ve seen we obviously have a large amount of superannuation funds and a big funds industry so it would be a shame to miss that and obviously your bill deals with that. The final aspect of the bill which I think is really important and we see quite a lot of activity is in the stable coin space and obviously there’s, there’s the algorithmic stable coin, so we’ve seen that, that business model fizzle out quite spectacularly but if we think about stable coins as a way of addressing the inherent inefficiencies of particularly bank transfers, you know international bank transfers taking 24 hours, 36 hours or little opaque and the ability is stable coins so it’s in ANZ with their stable coin and you’ve got JP Morgan with a stable coin – how do you, how does your bill sort of talk about the regulation of stable coins? |
| Senator Bragg | The idea of stable coin regulation is not particularly complicated, the idea is that you have to hold reserves against the stable coins that you’re issuing. So our bill would require someone who wanted to create a stable coin to firstly receive a licence and once they have the licence they would have to hold reserves against that particular coin. Now we’re currently consulting on exactly how to do that and there will be another bill we issue in due course but is important we try and get this right. The principle is that if you want to offer a stable coin you’ve got to hold the asset against it, which is entirely reasonable and this is what the Reserve Bank of Australia’s governor said to us as an estimate only two weeks ago – so he’s calling, so the governor is calling for regulation, [##] of the US to call this sort of regulation but you know the government has not, has no indicated any interest in moving in this direction which I think is regrettable because there will be future shocks, there will be market activities where people are going to have problems and there’s frankly been a lot of warning about this. I mean I think this is one of the easiest fixes to this whole digital asset space, I mean you could pass a law dealing with the stable coins in the next couple of months. |
| Nick Abrahams | Yeah. No I agree and it also strikes me as one of the areas that offers sort of most immediate benefit to a mainstream audience. |
| Senator Bragg | Yeah I agree. |
| Nick Abrahams | We know that you know there’s, it’s problematic the way that you know existing banking relationships force the delay in particularly international money transfers, if we could have the payment rails via stable coins, and there could be a great opportunity there for you know if it’s well regulated you know and Australians have you know the ANZ Bank stable coin or another Australian bank stable coin you know to actually become a stable coin that is a market leader then that would be an amazing experience. So yeah I agree entirely it does seem like you know…never, never simple I’m sure to get legislation agreed and passed, but no it would be interesting to see that. Just in terms of the bill – where to from where what happens? So maybe just, could you just explain for those who don’t understand how a private member’s bill works, what’s happening with…how did it come about, what happens from now and so forth? |
| Senator Bragg | Yeah so basically we made a whole lot of commitments in government that we will progress this agenda. We were not stressed with the elections and as a result we no longer have the resources of the treasury, I think we should progress a bill, so I’ve released for exposure a draft bill and we’ve received I think more than 50 submissions from various parties and I’m currently proposing to release a second exposure draft before introducing it in the senate as a private senator’s bill in say February/March next year. I’ve decided to do another round of consultation which actually I haven’t mentioned publicly before, because I thought there was so much good feedback from the first round that there was some refinements and I wanted to make sure were exactly right before introducing it. Once it’s introduced into it’s…I believe it would have a very good chance of being referred to a senate committee, the senate committee on economics which has got an excellent chair and an excellent deputy chair and that to me would then perform a legislative review so basically we would then ask, the parliament would then ask for stakeholder views and then once that report is done then the bill would be debated in the senate and there would be a vote in the senate. |
| Nick Abrahams | And then okay, terrific and so, so you think, so you’re bringing that out for another round of consultation, that will be presumably post-Christmas? |
| Senator Bragg | Ah don’t know, I’m sort of negotiating that with the office of parliamentary council. |
| Nick Abrahams | Okay. |
| Senator Bragg | We’ve got a bit on but we’re negotiating that and they’ve been great, they’re fantastic, incredible public servants, brilliant people to work with and look to be honest with you all the people in Canberra that run the parliamentary committee they’re super impressive and they do great work. If you think about this whole agenda in Australia, I mean sure I did some of the work on it is the chair, but the senate committee…sorry that was a select committee on Australia’s financial and tech centre did the work on bringing together that senate report which has set Australia up as a real leader in this whole space so you’ve got to give, I think it’s important to pay tribute to their work. In terms of the numbers in the senate I mean we would need the Green’s party to vote for it to pass through senate and I think look that’s, that’s quite possible, I think there’s a lot of concern that the labour government is not progressing these issues as soon as they could for various reasons. |
| Nick Abrahams | So just in terms of maybe sort of pulling back with the FDX saga and so forth, so there’s sort of a narrative around that the media is loving right at the moment which is crypto is dead and so forth – I mean where do you, where do you sort of see you know what’s the impact of FDX? Do you have any thoughts around you know what happens to the crypto world sort of medium to long term? |
| Senator Bragg | Well I mean I’ve always made the point that I think Napoleon said the English were a nation of shop [##]. I think the Australians are funnily a nation a personal investors – so people always look at this as a personal investment prison but I’ve always seen it as the examination of the utility of the technology and I don’t think anyone is seriously saying that blockchain and cryptology is dead and the technology – I just don’t believe that. So that’s my view. Certainly, I mean I’ve just written a chapter in a book about the capability of digital assets to support emissions reduction and I believe that there are many people who would like to have exposure to the emissions abatement projects which are happening around the world which could happen through tokenisation right just to give you one example. Now so my answer is it’s not dead, but if people want to look at it through a narrow personal investment prism then they may be unhappy with their current returns. |
| Nick Abrahams | Yeah. I suspect that’s certainly if you…a brief run through cryto Twitter will show there’s a lot of, a lot of unhappiness with the space generally. But I think you know just on that emissions engagement opportunity we had on the podcast a guy from Beta Carbons and you know it’s a fantastic [##], because you know with token |
| Senator Bragg | [##] |
| Nick Abrahams | …assets sort of I mean I struggle to see sort of what the value proposition is of putting on the blockchain if it’s an asset class you can already access to – so you can get access to obviously shares and property in some way or another, but no one can invest in carbon, very hard to get you know clear investment into carbon but we’ve got what guys doing the Beta Carbon and there are others obviously. That’s an asset class which I think is sort of very difficult to access and it seems there is a great opportunity there with tokenisation. |
| Senator Bragg | Well it’s a locked box, I mean you’re a typical Australian, you’re ability to get access to the carbon credit unit which is used for carbon abatement in Australia is basically zero. |
| Nick Abrahams | Yeah. |
| Senator Bragg | I mean you’ve got to be set up as a market participant in some weird market that is extremely expensive to get access to. So without wanting to be seen to spruik any particularly product here I think certainly the idea of democratising that type of exposure has got to be a positive, it’s got to be a positive. So yeah I think it is one good example but I mean the more basic example that I use when I was running the enquiry was just that peer to peer lending people might not be able to get financial advantage through smart contracts and blockchain, they can get access to finance from peer to peer lending organisation right, so I just think like why wouldn’t we want to give people those opportunities, obviously there’s always the caveat [##] coin of course Nick, but that’s just generally in my view you want to give people more and more access to new ideas and I think the idea of peer to peer lending or the idea of emissions exposure, emissions reduction exposure I should say, is a, are both good ideas. |
| Nick Abrahams | Yeah, yeah. Fantastic. Well look thank you very much Senator for your time and also applying yourself to the cause in as diligent a fashion as you have. It’s been great to have you know such a proponent of sort of sensible crypto regulation. So thank you very much for joining us on the podcast today. |
| Senator Bragg | Thanks Nick and of course I’m always happy to hear from any of my constituents in New South Wales if you have any, any feedback, I even take drafts on board sometimes. |
| Nick Abrahams | Ha, ha, ha, well terrific and so and we should take the senator at his words so certainly feel free to reach out and obviously we’ll keep an eye out for that next draft of the private members bill and best wishes with that, thank you very much for your time. |
| Senator Bragg | Thanks Nick, cheers. |