Australia has taken a “big step forward” in recognising digital currencies as legitimate and trusted with the government moving to regulate the likes of bitcoin for the first time.
Justice minister Michael Keenan unveiled draft amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act late last week in the wake of the Commonwealth Bank scandal.
The changes would bring exchanges for digital currencies like bitcoin under the remit of Austrac, the government’s financial intelligence and regulatory agency.
One of the key aims of the bill is to close a “regulatory gap by bringing digital currency exchange providers under the remit of Austrac”.
This means that businesses providing for the exchange of digital currencies will now be subject to the same reporting and regulations as larger banking competitors.
It’s also the first time that the digital currency exchange sector has been recognised and regulated by the federal government.
FlashFX co-founder Nicolas Steiger was the co-lead of this group, and said it is a coming of age moment for the Australian sector.
“We welcome this change, it’s a big step in the right direction. This marks the beginning of a new chapter in how value can be transported between consumers and businesses,” Mr Steiger told InnovationAus.com.
“This reform demonstrates that Australian regulators are moving in the right direction by providing existing digital currency businesses with more regulatory clarity.”
The new rules would place a series of new reporting obligations on businesses operating in the space. Digital currencies are currently operating outside of the regulated financial system, and have often been associated with underground, illegal payments.
The bill focuses exclusively on exchanges – “the point of intersection between digital currencies and the regulated financial system” – but Mr Steiger says the government had initially moved to include all companies working in the blockchain space.
Under the new rules, digital currency providers in Australia would be required to register on the digital currency exchange register, adopt and maintain an Anti-Money Laundering and Counter-Terrorism Financing program, identify and verify the identities of their customers, report suspicious matters and transactions and keep records for seven years.
And it’s serious business too, with hefty penalties to be imposed on digital currency exchange operators that do not comply with the new rules.
Fines of up to $105,000 and a jail term of up to two years will be imposed for a first offence, while this will be doubled for the second offence. A repeat offender with prior convictions will be facing up to seven years in jail and fines of up to $420,000.
Austrac recently launched a money laundering case against the Commonwealth Bank, and the new laws will place digital currency operators under the same sort of scrutiny.
But this is exactly what most in the industry want – to move away from being a cult-like underground form of money to one that is a legitimate alternative to the traditional way of doing things.
The new obligations are a small price to pay for being recognised as a legitimate financial offering, Mr Steiger says.
“It’s a pay-off for being more legitimate. Any business operating in this space should be able to do that – it’s part of knowing who your customers are, what they’re doing and what the funds are being used for. The industry wants to be regulated and legitimised,” he said.
The changes have been widely welcomed by the burgeoning industry that is striving to be seen as a legitimate competitor to the bigger banks.
Fintech Australia CEO Danielle Szetho said the reforms also gives the industry “room to grow”.
“This reform comes at a time where the digital currency market is reaching maturity, so they are necessary to legitimise digital currency activities for broader consumer use,” Ms Szetho told InnovationAus.com.
“The list of use cases for digital currencies – for consumers, businesses and government – are growing rapidly and industry recognises that this regulation is important to ensure the sustainable and long-term growth of this sector.”
The draft bill’s explanatory memorandum said that regulated digital currencies would lend them much-needed legitimacy.
“This regulatory gap is currently having an impact on the standing and public perception of the legitimacy of the digital currency sector, with some businesses choosing not to use or accept this payment method because of concerns about the risks associated with dealing with digital currency,” it reads.
“Continued non-regulation of digital currency exchange providers under the AML/CTF regime may impede the development or use of these currencies in the future and the growth of this sector and may also increase the likelihood that the sector could be targeted for nefarious purposes.”
Bringing digital currencies under the remit of Austrac will help to “level the playing field”, Mr Steiger said.
“At the moment the problem is that if you were taking money as a blockchain business, you don’t have to report that to Austrac, there are no obligations to report trades,” he said.
“The benefit with the bill is that we do report and have the same obligations as a bank or any other money service business or exchange providing information to the government to fight crime, money laundering and terrorism financing,” he said.
The laws will most impact businesses like Mr Steiger’s FlashFX, which facilitates international money remittance on the blockchain, and Kyckr, which uses blockchain technology to help banks identify its customers.
FlashFX is currently the only digital currency business that is voluntary listed with Austrac. If the bill eventually passes Parliament, all of these businesses will have to report to Austrac.
While the draft bill is an important step towards digital currencies being recognised as trusted and safe alternatives, there are still many left along the way, Mr Steiger said.
“It’s still a big issue, and even if a bitcoin exchange is reporting to Austrac, they still don’t have an ASIC licence. This is only half the game. It’s not the end game, it’s one next step towards it,” he said.