Introduction
The Australian Government has released exposure draft legislation that, if passed, will significantly transform the regulatory framework in the digital assets space. The proposals aim to bring digital asset and tokenised custody platforms within the financial services regulatory perimeter under the Corporations Act 2001 (Cth) (Corporations Act), requiring operators of them to hold an Australian Financial Services Licence (AFSL).
The release of draft legislation follows a series of earlier consultations, including the October 2023 paper “Regulating Digital Asset Platforms”, which highlighted the need for a fit-for-purpose regime to address consumer risks while supporting innovation.
For the insurance industry, this marks a pivotal moment. The proposed reforms aim to introduce new compliance obligations, enforcement mechanisms, and consumer protection standards to reduce the regulatory uncertainty facing entities operating in the digital assets space. It provides an opportunity for insurers to more confidently tailor insurance products for the Australian digital assets industry.
Current regulatory landscape
The application of current financial services laws to digital assets is inconsistent and often unclear. This has led to uncertainty for digital assets companies, restricting innovation and limiting visibility for insurers assessing risk exposure. While ASIC’s Info Sheet 225 provides some guidance, both industry and regulators have accepted that an overhaul of the regulatory framework is required to directly address digital assets.
Some entities have voluntarily obtained an AFSL whilst others have operated without one. This fragmented approach has made it difficult for insurers to apply consistent underwriting standards or anticipate regulatory enforcement. A current case before the High Court of Australia is just one example. Special leave to appeal was granted in September this year in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd ACN 655 090 869 [2025] HCADisp 209.
By providing greater regulatory certainty, a licensing framework for digital assets will enable insurers to participate with more confidence in the Australian digital assets market, improving the stability of the sector and consumer outcomes.
What is proposed?
The proposed reforms will expressly bring digital asset platforms within the Australian financial services regulatory framework.
The exposure draft legislation establishes three key concepts:
- Digital Token: A digital object will be a digital token if one or more persons are capable of controlling the digital object.
- Digital Asset Platform (DAP): This isa non-transferable facility under which a person (the operator) possesses one or more digital tokens (the underlying assets) in trust for, or on behalf of, either another person (the client) or another person nominated by the client (the client nominee).
- Tokenised Custody Platform (TCP): This is a non-transferable facility under which an operator identifies one or more underlying assets. For each underlying asset, the operator creates a single digital token that, when possessed, confers a right to redeem or direct delivery of the underlying asset, and holds it on trust for, or on behalf of, each person who possesses the digital token.
DAPs and TCPs will be required to hold an AFSL.
It is interesting that the draft legislation proposes to regulate DAPs and TCPs, which are digital asset platforms, as financial products. This will be achieved by expressly including them as specific things that are financial products under s 764A of the Corporations Act. This strategy may be out of necessity considering that many digital assets do not have an ‘issuer’ (for example, unlike insurance products) due to their decentralised nature.
Furthermore, it is not intended for TCPs to be used to create payment stablecoins by tokenising money. These types of platforms are subject to the separate stored value facility (SVF) framework, which is subject to a separate proposed law reformcurrently in consultation. .
It is proposed that operators of smaller platforms may be able to rely on licensing exemptions. A ‘low-value’ exemption will apply to platforms holding less than A$5,000 per client and facilitating under A$10 million in transactions over a 12 month rolling period. Although no application is required, ASIC needs to be informed if a person intends to rely on the exemption.
Opportunities for insurers
The proposed regulatory framework will create a more stable foundation for insurers to innovate, grow and build long-term partnerships with operators of DAPs and TCPs. The application of existing AFSL obligations will include the requirement to provide financial services efficiently, honestly and fairly, manage conflicts of interests, comply with design and distribution obligations, comply with unfair contract terms laws, be a member of an approved External Dispute Resolution scheme (i.e. the Australian Financial Complaints Authority – AFCA), and have adequate compensation arrangements for financial services that are provided to retail clients.
Adequate compensation arrangements are a requirement set out in section 912B of the Corporations Act. AFS licensees must have arrangements for compensating retail clients for loss or damage suffered due to breaches of financial services legislation. At present, the Corporations Regulations 2001 (Cth) prescribes that AFS licensees must have adequate professional indemnity insurance cover, unless an exemption applies. ASIC’s expectations are also set out in Regulatory Guide 126.
Accordingly, one of the most significant opportunities for insurers is product innovation. With clearer regulatory expectations and a licensing framework for operators of DAPs and TCPs, insurers can develop tailored offerings that reflect the unique risk profile of these platforms.
Risks that may be insured include those associated with digital asset loss and fraud, cyber incidents, and D&O exposure and liability protection for custodial services.
The road ahead
If adopted, the proposed reforms will be a significant step forward for Australia’s digital asset sector by providing a clear regulatory framework, removing the uncertainty that has limited innovation until now. For insurers, the shift from regulatory ambiguity to a structured compliance framework offers an opportunity to enhance product offerings and support the sector, including the consumers that participate in it.
Following the consultation period, Treasury will finalise the draft legislation to be introduced as a bill in Parliament.
We will continue to monitor the development of the digital assets legislation and its impact on insurers. We look forward to sharing more updates as they come to hand.