New Australian cryptocurrency regulations: Industry responds
What are industry insiders saying about the new Australian cryptocurrency regulations?
Australia has just started enforcing a new set of industry guidelines for cryptocurrency exchanges, as of 3 April. The new regulations make it mandatory for digital currency exchange businesses to meet anti-money-laundering and counter-terrorism financing (AML/CTF) guidelines.
Cryptocurrency exchanges operating in Australia must now register with AUSTRAC and:
- Adopt and maintain a working AML/CTF program to identify and mitigate money laundering risks
- Identify and verify the activities of their customers
- Report suspicious activity to AUSTRAC as well as transactions involving physical currency of $10,000 or more
- Maintain certain records for at least seven years
There's a six month period for registrations to be processed, after which "there will be criminal offence and civil penalty consequences if you provide digital currency exchange services without being registered," AUSTRAC warns.
The industry responds
Many exchanges have gone out their way to meet these obligations anyway, and if their systems are adequate then it might be a simple matter of registering with AUSTRAC. But now that Australia has implemented a solid and enforceable set of guidelines, industry insiders around the world, and in the USA in particular, are carefully considering how it works and whether similar processes might be arriving in their country at some point.
The common sentiment from many experts is that:
- Australia's regulations are similar to what's been around on paper in the USA since 2013, but there's a lot more clarity around how the regulations will actually be enforced and what businesses need to do.
- One of the key points of difference is that Australia has a single authority (AUSTRAC) to handle the regulations and enforcement, which helps a great deal and is something other countries should consider.
- The new regulations give AUSTRAC some fresh responsibilities, as well as crypto exchanges, and all parties need to pull together to make it work.
- It's a welcome move, but at the same time, it only targets digital currency exchanges in a single country. More proactive, holistic global regulation is needed.
Loretta Joseph, chair of the Australian Digital Commerce Association (ADCA)
The ADCA is an Australian industry group that's committed to maintaining a high standard of digital commerce activities, bolstering consumer confidence and working with the Australian government on practical frameworks for digital currency regulation.
"The ADCA worked very closely over the last 18 months with the Australian government and regulators, AUSTRAC, to bring clarity and oversight to an industry that needed guidance and formal regulation in order to allow industry players to adhere to standards," Joseph says.
Australia has been a relatively early mover and shaker in the fintech space, and Joseph suggests that Australia's responsibly innovative environment might serve as a model for other countries, while noting the benefits of having a single regulator for the space. The USA in particular has struggled with a fractious regulatory environment, which may be stifling both innovation and regulatory progress.
"Australia, as a mature market with one regulator who is open to innovation and a government with an innovation agenda, can be a clear leader in the responsible adoption of blockchain technology."
Nolan Bauerle, head of research at CoinDesk
Bauerle notes that the new regulations officially bring cryptocurrency exchanges in line with banks and other responsible financial services providers. He points out that the new development will also see AUSTRAC being graded based on its performance. These regulations give new responsibilities to cryptocurrency exchanges, as well as regulators.
"The Australian approach treats exchanges more or less as money services businesses, in-line with many other jurisdictions in the world," he says. "Cryptocurrency exchanges, like fiat currency exchanges, are deputised to help law enforcement identify money launderers. They have a risk-based approach for transaction reports under the standard $10,000 threshold, and automatic reports for transactions above $10,000. So, standard practice for most currency exchanges."
"The aspect that is important to monitor going forward will be the performance of... AUSTRAC. This agency will now have even more information and data to track, store and secure. Agencies like them around the world – FinCEN in America, for example – already have poor track records when it comes to prosecutions based on the data they gather."
"With the cryptographic sophistication and global, borderless infrastructure around cryptocurrency trading, we'll have to wait and see if this is just more agencies gathering more data that serves no purpose other than to provide a talking point that they are 'doing something' to fight terrorism financing and money laundering."
Ryan Taylor, CEO of Dash Core Group
Right now the cryptocurrency industry is hungry for regulatory clarity, Taylor says, but whether this is the eventual way forward depends on how it ends up being implemented. He points out that the rules are broadly similar to what's already been implemented elsewhere, but the execution is potentially a lot smoother in that it designates a single authority to enforce the laws.
"These are KYC/AML rules that we've seen in other markets, such as the United States," he says. "The positive aspect of this announcement is that Australian authorities are providing increased regulatory certainty by designating the exact regulatory body that cryptocurrency exchanges will need to engage with moving forward. It'll be interesting to see what happens over the next six months as the Australian market transitions to this new regulatory regime. As an industry, we've been asking for regulatory clarity for the exchanges, and good faith in implementing these changes. This regulation seems to go in that line, but until we see how it is implemented we can't fully judge."
Rachel Lam, VP of regulatory strategy at Polymath
Polymath is designed to create a new standard for applying regulations to cryptocurrency and investing in different jurisdictions. It has undoubtedly been closely tracking these kinds of developments around the world. For Lam, it's all going to plan and highlights the benefits of proactively embracing regulations, like many are doing.
"It’s not surprising that AML rules are applying to businesses in blockchain and cryptocurrency," she says. "Australia's updates move closer to regulatory requirements that are already in place in the US ($10,000 reporting threshold). The Polymath platform was designed with these regulations in mind, as a proactive approach to regulators is more productive in the long term."
Joseph Weinberg, Shyft chairman and OECD Think Tank special advisor
Weinberg believes the level of clarity these regulations bring is essential for the growth of any ecosystem. At the same time, he's wary of how it might be practically implemented in the long term in Australia, noting that there's still a bridge to be crossed between the traditional banking sector and cryptocurrencies in Australia.
"This is long overdue and a great step forward for the crypto ecosystem," he says. "The legislation was created last May with the Australian Digital Commerce Association and is only being pushed through now. This is an important step because most Western countries and crypto ecosystems within these economies are still waiting for formal direction and how we regulate ourselves. These guidelines present a new level of clarity that is critical for any ecosystem to achieve maturity, advancement and growth."
"But while the guidelines enable clarity for the crypto ecosystem, Australia's issue is still in its banking atmosphere. Given the conservancy of their financial system, in my opinion, it will take a different calibre of crypto exchanges and companies than what Australia currently has to clear the bar and really break through this challenge. I think it will take a similar strategy to what Paycase Financial took with TMX last month – crypto companies partnering with established traditional financial institutions – in order to make it work. But these guidelines, as created by Loretta Joseph and the Australian Digital Commerce Association, is still a massive achievement."
Arnold Spencer, Coinsource general counsel and former attorney for the US Department of Justice
Spencer puts Australia's regulatory movements in the wider context of cryptocurrency as a whole. He points out that it's a big step, but also that it's just a single step in a marathon.
"Australia’s new regulations reflect broader trends," he says. "Countries across the globe are increasingly monitoring businesses and their customers that buy and sell digital currencies to address money laundering concerns. Regulations like these will lead to widespread adoption. As long as the broader community perceives that digital currencies are being used mainly for criminal purposes, they won’t use them. With a regulatory framework, people will see Bitcoin as legitimate and will be more comfortable buying, holding and spending digital currencies."
"Unfortunately, it’s all reactive. All these new efforts to adopt digital currency regulations are piecemeal. One country passes regulations for exchanges. Another country adopts policies for ICOs. A third country passes new tax policies. But no one seems to have a comprehensive, forward-thinking digital currency strategy."
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, XRB