21 – How Australia Plans to Adopt Crypto – Interview w/ Senator Bragg

Tracey: [00:01:51] Welcome to the crypto curious podcast designed to help you navigate the dynamic world of crypto currency. This podcast is here for anyone who is interested in crypto at all. Maybe you've already dip your toe in the water, or maybe you don't know anything at all about it, and this is the very beginning. Crypto curious is a place to get started as we cover off all the basics that you need to know, but we recommend heading back to the earlier episodes to get your footing. However, if you think you're ready to dive in headfirst, what an episode to start with this week is a very special episode. Blake and I were incredibly lucky to speak with Senator Andrew Bragg. So without further ado, let's jump in. I'd like to set the scene because we have some non-Australian listeners of the podcast, and I want to give our next guest a great introduction as he's pretty special. Senator Andrew Bragg is a pro crypto Australian politician who is considered to be one of the more progressive leaders in the Australian Liberal Party. He has become somewhat of a poster boy for crypto as we change the narrative away from only tech heads and criminals towards something that everyday people can use to further their futures. Be that through investment or through a career in this booming industry. Senator Bragg has a long track record that shows his understanding and commitment to Australia as a technology and financial leader. Understanding that emerging fields such as blockchain technology and crypto create hundreds of thousands of new jobs. Andrew oversaw the Australian crypto report published in October of last year, which was a very hot topic. The report made 12 recommendations intended to tackle key issues relating to the crypto sector, a troubadour for the crypto industry. Just last month, Senator Bragg made it to Cointelegraph's top 100 most influential list of 2022. Now he sat there at number 82 globally, complete with a caricature image that we just know will become an NFT any day now. So we welcome Senator Andrew Bragg. Thanks for joining us today. 

Senator Andrew Bragg: [00:03:58] G'day, Tracey, how are you? 

Blake: [00:04:00] Thanks so much for joining us, Andrew. So first of all, be really great just to hear a little bit about you. And what's your background? 

Senator Andrew Bragg: [00:04:07] Sure. Well, look, I grew up in northern Victoria and I did normal stuff like played football, went fishing, did all the sort of stuff that country kids do. And then I sort of I'm denied that heading off to university and I decided that I'd throw in my job at Big W, which is a retail store, which I was really quite committed to, actually, but I decided to head off to uni. Then I ended up working as an auditor at Ernst and Young after I finished uni and I was always a contrarian. I mean, I didn't like me, I didn't like them. And then subsequently I spent a long, long time working in financial regulation, financial services, and then I came into the parliament a couple of years ago. So that's sort of my life story. Yeah, so hopefully it gets bit more interesting from here. 

Tracey: [00:04:54] Where did crypto come into it along the way, then, Andrew? 

Senator Andrew Bragg: [00:04:57] Well, well, I mean, I guess I was asked to chair an enquiry into fintech, and as I was doing that, we delivered a couple of reports and then my judgement was that we needed to do. A big body of work separately on crypto because we didn't have the time in the initial reports. And look, I didn't go into the crypto review, which we did for six months last year with any preconceived ideas. I mean, I never really thought about it, to be honest. I mean, I wasn't hostile. I wasn't a big, you know, crypto plumper. I just thought it was worth having a good look at. And that's what we did. So I guess in doing so, I formed a view that it is it is positive. It is a good thing, but it needs to be managed.

Blake: [00:05:44] Yeah. Well, I think that really covers off on how it was initiated. But how has it been received by the public in the industry? 

Senator Andrew Bragg: [00:05:51] Well, I think to start with, I mean, a whole lot of people in Canberra, which is our capital, thought I was crazy about talking about this stuff. And I guess the view was it's sort of the domain of drug dealers and terrorists and the like. But and then I've had a lot of feedback like, Oh, you know, bitcoin, bitcoin's going down, how do you feel like, well, I feel quite good, actually. I mean, it's I'm not interested in the price of any of the coins. I've always been focussed on the utility of the technology and how the technology can help us have a country where people can get new choices, have more agency, have more control over their lives. And the reality is that Australia is a country or nation of oligopolies where you have far too much control vested in the hands of a few. And I say crypto is an opportunity of breaking that down. But I mean, to answer your question properly, I mean, I just think that it was a good opportunity to listen to people. We had more than 100 submissions. We did public hearings. We went to listen to people that haven't been heard from before, which was very good. And, you know, we formed a few judgement to that had a regulated. 

Blake: [00:06:59] Yeah, now it's awesome and it's really great to see, you know, the industry grew so quickly, so fast. And it's really great to see, you know, some attention from the regulatory side because, you know, when I was working in the industry early on, it was a lot of grey area and we didn't know what was happening. You know, we didn't know where where everything was going. And I think this certainly is a step in the right direction is helping everybody. We might just go through some of the recommendations, and it'd be really great just to hear, you know, a little bit more information about them for our listeners. So the first one we'll touch on is, you know, the recommendation around a market licence. So as we know, cryptocurrency exchanges, you know, they're generally not regulated except for AUSTRAC, for things like money laundering and to track your counter-terrorism financing. And that creates a lot of grey area for these businesses that are holding, you know, billions of dollars potentially and have hundreds of thousands, if not, if not millions of users. So there's, you know, complicated products being developed in this ecosystem self-executing smart contracts, derivatives, things that have never previously been possible and that retail investors or everyday investors haven't had exposure to. And this creates lots of, I think, challenges for regulators to respond to. And of course, if it's overregulated, people might go go abroad. So could you speak to the challenges here when you know, trying to regulate cryptocurrency exchanges in such a you're a dynamic, dynamic space? 

Senator Andrew Bragg: [00:08:29] Well, you've got 20 percent of people in Australia that already have some exposure to crypto. So that's a large part of the population and it is unregulated. And I don't believe that the AUSTRAC regulation, which applies to digital currency exchanges, is very strong. I mean, the committee heard evidence that you could get a DCE and half an hour. It's very, very low level of regulation. So the whole point of doing this is really to do two things. Firstly, to protect consumers and secondly, to drive investment onshore and also to stop investment going offshore because we have a major issue with the capital drain and a brain drain in Australia. And to give an example, I mean, you've seen Independent Reserve, which is a Sydney based company employing my constituents, having now sought and achieved a Singapore licence. And then you see Quanzhou in Melbourne doing the same in the UK. So it's a very real problem for us here in Australia that Australian domiciled companies are moving the domicile offshore. So the thinking behind having a Cryptomarket licence is it there oughta be certainty and protection for consumers, but also providing that certainty for investors. Now, the way that those should be shaped, it will be subject to further Treasury consultation. But at a minimum there'll be a capital requirement. There'll be a fit and proper person test. There'll be, you know, an auditing obligation. There'll be other governance standards in disclosures that you would expect. Now I don't think you're going to see the same sort of market licence that applies to the ASX. You see a cut down version of that. And it will be important that it's competitive. I don't want to see our Cryptomarket licence cost us opportunities for innovation. But I do accept that in this area there are trade-offs. So what I mean by that is the moment you have 600 acres, right? 600 digital currency exchanges have an AUSTRAC piece of paper. I mean, I wonder how much that paper is worth that will go down to maybe 20 or 30. Would be a massive industry consolidation because of the capital requirement and because of the governance standards. And you know what? That's going to be unpopular with some of the people that are listening to this podcast. But that is a judgement that we prepared to make because we've decided to cross the Rubicon into regulating these entities. And the same thing goes to the people who are saying, Well, hang on, crypto is a libertarian nirvana. Now that's very good, and I'm a bit of a libertarian myself. I get it, but we can't have a situation. We have massive regulatory arbitrage where you've got huge, detailed financial services, licencing and regulation schemes, and then you have this thing totally unregulated. So I want to kill your individualistic zeal. I don't want to. I don't want to lose any dynamism. I don't want to lose any of that stuff. But we're going to have a baseline level of regulation, which is going to be less than applies to the ASX. And we will talk to you about how that will work. And the good news is that on the capital requirement is there'll be a variable component. It won't just be you have to have a billion dollars, it'll be you've got to have x Dollars and large part that can be variable based on your risk. 

Blake: [00:11:45] Yeah, no, that's really interesting. And you know, what's even more interesting is, you know, potentially how things like decentralised exchanges fit into this picture. There was a recommendation about an appropriate regime for custodial and depository services for digital assets at the moment. You know, there's only a few really high quality big international players like Fireblocks Curve and BitGo, amongst others. And it's, you know, they've only really come to prominence over the last two or three years maximum, you know, and there's currently no providers here in Australia. Why do you think that is? And is the market too small? 

Senator Andrew Bragg: [00:12:23] Well, again, we've recommended a custody system and that would have its own governance standards. It could be quite similar to what applies to markets. And I think you'd see Chinese walls between organisations that wanted one to give to both custody and run an exchange. And that would be a judgement for those, those those businesses and the regulator that grants licences once we've legislated and the other option on the table we have here is setting up a custody SAL bank in Australian law now, the Wyoming. He's done this. And I think it's been reasonably successful with the and some of these other organisations. We have in recent years through APA, which is the prudential regulator, sought a policy which wasn't necessarily a policy of the government, but it was a policy that brought which is a bit weird or not to try and further the development of neo banks. It hasn't been particularly successful. I don't think we should go down the path of asking Apple to do this. I think the parliament should consider whether we should legislate a cut down version of a banking licence for custody only saw banks. I think that could also help address the massive problem we have in this country of debunking banking where you've seen individuals day banks sometimes up to 90 times in their personal capacity because they've had some engagement with cryptocurrency. And so I'm not into sort of crazy. I mean, do some crazy things, I'm sure, but I'm not into crazy solutions. And then they're very sorry that the banking problem is a real problem in our economy because people with new ideas find it hard to get access to banking services, and that can make it very hard to stay afloat. So we don't believe in our party. That we should force businesses to bank individuals or individual businesses. I mean, that's just not how liberalism works. Liberal economics can work. I don't even think the Labour Party believe that and do some really crazy things. I mean, maybe they do. You have to ask them. I don't think I have any policies, actually. So good luck with that. But yeah, so we need to find liberal solutions here. If we can't get the banks to do the right thing, then we have to legislate a different system. And we're open to doing that. 

Blake: [00:14:40] Yeah, I agree. And I think, you know, bringing this regulation of, you know, some sort of custody bank for crypto or you know that that holds crypto a new regulation around that it'll certainly help bring things like insurance to the industry because currently it's pretty, pretty muddy waters. And yet consumers really want those types of services. But trying to get opera approved insurance provider for your crypto is probably impossible right now. 

Senator Andrew Bragg: [00:15:08] Yeah, and this is the thing. I mean, my view is if you build it, they will come. If you build the fundamentals, a certain clean competitive regulatory system, then the rest will look after itself. The challenge in that scenario is how do you keep up with other jurisdictions and how do you how do you respond to developments over time? And that's why I think in the way that we design this law and, you know, apologies to the lawyers on the podcast, but I'm sure that people that want to hear the detailed sausage making of parliamentary legal systems. But the reality is that you need to have a flexible act of parliament, which could allow the minister of the day, whoever was in government to make changes along the way. What we have in the corporations law, which was legislated into this in a one, has been way too restrictive and it's been possible to change. 

Blake: [00:16:02] Yeah, yeah, no flexibility, certainly important in, you know, ever evolving space. And you know, this kind of leads onto our next section about, you know, token mapping. And obviously, there's lots of challenges when mapping new exotic things like NFTs and, you know, strategies, you know, in smart contracts and and wild, wild and wacky things that you find, you know, in DeFi. How is how regulated has been to keep up with that? You know, it's it's just challenging for me to keep up with it. 

Senator Andrew Bragg: [00:16:32] Well, I mean, it's funny. I'm giving a speech soon about NFTs because I'm opening up a gallery here in Sydney of NFT, which is quite exciting. And as part of the research for this space, we've been looking at the potential. For particularly indigenous artists that have had issues with provenance and have had issues with distance. And it's extremely exciting to see that the these artists will now have the same opportunities as visual artists or a sorry of recording artists that have been afforded to them over decades because of the receiving of royalties. So it is very exciting and very liberating and very democratic, and I think it really does level the playing field for almost any Australian who wants to be. I mean, I have I don't have a creative bone in my body, but for anyone who wants to create art, create something, they'll be able to do that and then be be remunerated failure over the course of their lifetime. So it is exciting. It will change a lot. The answer to your question black is the Treasury will need to do a Typekit mapping exercise, which sets out a scheme where there are principles set for a few different categories, right? And so you might have currency. Property contractual rights is three big buckets, right? And that's what you've got. And then if you're a currency, then that drives you tax treatment, if your property that drives you tax treatment because all you really need to know the sunshine over, complicate things or try and wreck everything like when government cigarette wrecking stuff. But we just want to have simple principles so people know what they stand for a tax and regulatory point of view. And I think that's what taking mapping can do. And and this will only be as good as the information we received back from the industry. So I encourage people to say stay in touch and to and to make submissions into these processes. 

Blake: [00:18:20] Yeah, for sure. And I think you're right, a principle based strategy makes perfect sense and creates lots of flexibility while also giving some some guidance to the industry. And you're on how to manage these things. All right. So the next one I want to chat about was down. And how does a fascinating concept and allow give people a new way to organise themselves on the internet that, you know, that might have been, you know, not possible just a year or two ago. Obviously, there's no real counterparty with a DAO. And they as they undertake, you know, doing amazing things. But some of these Dollars are starting to look like investment vehicles like decentralised funds. You know, my first thought, how do you regulate these things and what are the ideas around regulating DAOs? 

Senator Andrew Bragg: [00:19:04] Well, it's a good question. I mean, there's a few points of context, right? Australia has the most exposure to corporate tax in the OECD in that we are heavily reliant upon the receipt of company tax. So if the company tax system is going to be disrupted because of the advent of doubt, then we have a major major problem and we have a major law reform need. The second point I'd make is there is strong support in the industry for there to be regulation of doubt. And you might find that we have a law that has model rules for a Dow constitution that gives a requirement for there to be an agent, write a personal physical person to be contactable. These sort of things that are vested in the law. But the more detail you put in, the more uncompetitive you make the system relative to other jurisdictions. So. But I was surprised when we had a roundtable earlier in January this year. So politicians do work in January sometimes that there was so much support for four detail of a detailed law with the sort of design features, as I mentioned before, about key people auditing standards, code audits, for example. So I think that's good. That makes it much more saleable from our point of view in Canberra that there is support from the industry to have a bit of detail, but I'm conscious that we don't want to make it to to detail because we risk the whole scheme. But as I said, we have to have something because otherwise our tax base is going to be massively disrupted. My jump in 

Tracey: [00:20:45] here with one on CBD sees a central bank. Digital currencies are really fascinating. Technology development in countries like China are embracing private blockchain technology, and others are looking into it. So what do you think the future of these CBDCs are? And will they replace traditional currency? 

Senator Andrew Bragg: [00:21:04] The Australian dollar is a very strong currency. It's the fifth most traded currency in the world, so we don't have the issues they had in El Salvador, and we don't we don't have economic policy lessons from them. But there are some lessons that forward of that example where they've used bitcoin as a national tender, I guess. Look, we also don't like economic policy lessons from China, but we do need to be. We do need to be. I mean, it's a totally different system. I mean, we have a democracy, they have an autocracy. There's a whole lot of different where they have massive human rights abuses. You know, we have a largely largely fair and safe country for minorities. And but the point about, they say, is we need to be prepared for the effective takeover of a large part of the payment system by American Big Tech companies. And if Apple is going to become a buy now, pay later provider and Google is going to become a bank. We're going to lose a large part of the sort of the economic sovereignty we would have had in the past when, you know, for big banks that have Ren the payment system. So we need to have a proper plan to address that. And you would know that you can have a discussion about the economic policy benefits of these things. But there is also a rapidly deteriorating strategic environment in which we are living in. And so you can't have these discussions without considering the security, environment and security overlay. And so Australia is in the unique position of being in the Five Eyes, but also being part of the Quad, where I think we need to consider how we can work with allies to ensure that we are protecting our interests, but also looking after our economic imperatives. 

Blake: [00:22:50] Yeah, that's a really good point. Those that are proponents of, you know, central bank digital currencies say that, you know, there's potentially substantial efficiencies that can created in the economy by, you know, having audible, you know, accounts you're registered on audible blockchains. And then, you know, potentially you could you could replace auditors with codes and you could audit, you know, a company or a bank or 

Senator Andrew Bragg: [00:23:14] put me out of a job. 

Blake: [00:23:16] You could do that in an automated fashion. And obviously there's lots of benefits. But is there any thoughts around this from, you know, financial, you know, government of large financial institutions? Because, you know, I could suspect that, you know, many would want to push in this direction. 

Senator Andrew Bragg: [00:23:31] We have to ask the large financial institutions that what I can say to you is we recommend a Treasury review, not an RBI review, because we needed to take it the broadest possible view of the Australia's national interests here. And that is more clear than ever that we need to look at not just the economic, but also the national security implications of doing something or not doing something. Now, most of the transactions today in Australia will be conducted virtually effectively through a digital transaction. So we already have a digital dollar in that sense. The question is, what else do we need to do to the payment system to ensure that we are availing ourselves of all the opportunities to protect, defend and advance our interest? Now, I don't want to give you too many talking points on these topics. I'm not so good at talking points, but very hard to script, I think actually probably not the best. But the point is that would you? So what would an Australian dollar digital Australian dollar do that is not doing now? And would the RBI have a wallet, for example? Are we worried about the Chinese? While it's in Australia, I mean, these large these poor here, which is a terrific part of Sydney, I mean, one of my favourite things about being a senator for New South Wales is all the guys we get to do with the Chinese Australian community here, which is spread widely across Sydney and beyond. And the reality is a lot of a lot of a lot of these people will be using wallets, the 10 Worlds and Alibaba Wallet and whatever else they are earning so good. But who's able to look through into these and what does that mean for us? 

Blake: [00:25:17] It's certainly fascinating, and it's it's going to be it's going to be great to watch it evolve. 

Tracey: [00:25:22] Look, I think we've got a couple of broad questions to finish off. But before we leave the report, one last question if we could get any more information or updates on the Bragg report and how it's actually progressing. 

Senator Andrew Bragg: [00:25:31] So we delivered the report in October. And in December, the Treasurer Josh Frydenberg announced that the government would adopt 95 per cent of the recommendations, and that's the policy of our government. It's been through the cabinet announced by the Treasurer, and that is the policy of Australia. So the Treasury now is hiring people to go and work on these reforms. They've already hired 15 20 people, and so people are listening to this and they would like to work at Treasury in Canberra. A highly recommend you do that because we need as much market expertise as possible. One of the problems with having a purpose built capital in the middle of nowhere is that it's in the middle of nowhere, and that is bad generally for anything which is exposed to business policy. But in this space, we're a long, long way from the market. So at the moment, the Treasury is bringing together some consultation papers on how the market's licences could work, how the custody system could work. I hope that those will be released before the election. 

Blake: [00:26:27] Awesome. We look forward. We look forward to seeing it. Just a final question here and there. Just really interesting, in a general sense, what you really find exciting about the industry and kind of where you see it in your business in five years time. 

Senator Andrew Bragg: [00:26:42] Well, I just think that the reason I'm excited about it is because people can get new choices. People can have more agency in their lives and then they're no longer going to be slaves to major institutions. And that's going to give people more control, more happiness. It's also going to create more jobs in our country. So I mean, I'm a politician, I'm interested in those sort of outcomes. And I think, yes, we need to wear a bit more risk to get there. But I mean, that's that's a risk worth taking on. And this is this is where the world is going. And if we're not prepared, we'll be massively disrupted as a nation of oligopolies. So we have to we have to get with, we have to have a programme and I think we have a good programme. I think it's clear and it's something I'm happy to have done in my time in parliament. I don't know how long I'll be doing this job for, but certainly insofar as the time that I've had so far, I think it's been one of the most useful things because it's a product of a huge amount of community engagement. I mean, this is something that people have asked for. We've spoken to a lot of people. And so now I'm very keen that way. I'm keen that we make good on our promises. And of course, this is now up to the Australian people, really, because we have an election due in May and people make a judgement at the ballot box as to who they want to be the government. And if we are re-elected, then this is going to be our plan. And if Labour Party wins the election, then who knows it could be anything or some? 

Blake: [00:28:16] Well, we certainly hope that, you know, these recommendations come to fruition. It is certainly going to help our industry mature. And yeah, we'd like to thank you for joining us today and sharing. You're giving us a little bit more insight on, you know, the report and what you're thinking 

Senator Andrew Bragg: [00:28:31] now, our gratitude to all of us. 

Tracey: [00:28:34] And that was our chat with Senator Bragg. It was great of him to take time out of his busy schedule to talk to us. And I, for one, was really impressed with just how down to earth he was and how much this crypto industry really meant to him. We'd love to hear what you thought of the interview or tell us who you'd like us to interview next. What's exciting you about the industry and what do you think is newsworthy? We love it when you, the members of our crypto curious community, tell us what you think is newsworthy and get in touch. So that email is podcast I get bamboo io. Remember to follow us on social media as well, and all those details are in the show notes below. Thanks for listening, and I hope you'll join us for the next episode. Bye for now!