Australia has introduced new laws to regulate digital currency exchange service providers in the same way as providers of traditional currency exchange services. Businesses providing digital currency exchange services (for example, services converting money into bitcoin and vice versa) will need to be registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and comply with anti-money laundering requirements, following the passage of Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 last month.
This follows in the footsteps of similar regulation in the EU, US and Canada that puts digital currencies on an equal playing field with money and reduces the risk of cryptocurrency use in digital fraud. The new legislation extends Australia's anti-money laundering and counter-terrorism financing regulations to cryptocurrency exchanges. Under the new laws, digital currency exchange providers will be required to monitor and report certain transactions to AUSTRAC. Specifically, digital currency exchange providers will need to:
- identify and verify the identities of customers using their services;
- report suspicious matters, international transactions and any transactions involving physical currency that exceeds AUD$10,000 (for a foreign currency equivalent) to AUSTRAC;
- have an anti-money laundering and counter-terrorism financing program in place to monitor, mitigate and manage money laundering risks; and
- maintain records of certain transactions and customer identification for a period of seven years.
Following registration with AUSTRAC, cryptocurrency exchange service providers will be placed on AUSTRAC's new Digital Currency Exchange Register. Failure to register with AUSTRAC will constitute a criminal offence. A first offence carries penalties of up to 2 years' imprisonment and/or a fine of $105,000 and higher penalties are applicable for repeated offences. Digital currency exchange service providers in breach of the laws may alternatively be pursued under the civil penalty provisions and be subject to penalties of up to $21 million for corporations and $4.2 million for individuals.
By focusing on the activities of digital currency exchange providers, the new laws effectively target the 'entry' and 'exit' points of the digital currency system – i.e. when a person uses regular money to buy digital currency or convert digital currency back into regular money. As a result, the laws will not affect how digital currency can be transferred between users nor the privacy of such transactions. To date, the new laws have been welcomed by the Australian FinTech industry as providing the necessary regulatory clarity for cryptocurrency growth in Australia. The new laws will come into effect on 13 June 2018 (unless proclaimed earlier). For an insight into what the new laws mean for your business, see our previous article which summarizes the Bill that was passed into law last month. The
Bill can be found here.