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Payments & FinTech Lawyer

Australia proposes AML/CTF changes to cover digital currency exchanges

The Australian Government published on 17 August 2017 proposed amendments to the country’s anti-money laundering (‘AML’) and counter terrorism financing (‘CTF’) laws, with digital currency exchanges to be included for the first time.

According to the proposals, a digital currency exchange being provided through the permanent establishment of a person in Australia, or where the operator is an Australian resident and the exchange is being operated through a permanent establishment in another country, or where the person is a subsidiary of a company that is a resident in Australia and the service is provided through a permanent establishment of the person in a foreign country, will fall under the regulation. As such the exchange will need to carry out a number of requirements, inter alia adopting and maintaining an AML/CTF policy, registering on a ‘digital currency exchange register’ to be maintained by the Australian financial intelligence and regulatory agency Austrac, and performing identity verification on customers of the exchange.

“Currently exchanges in Australia adopt a range of approaches to AML risks. While some take no measures to manage these risks, increasingly many exchanges have been voluntarily taking on AML/CTF compliance,” note Mark Sneddon, Paul Derham, and Alexa Freeman of Holley Nethercote. “The amendments, once passed into law, will establish a mandatory regulated environment for exchanges, which will result in most exchanges becoming registered and fully AML compliant. A few may cease business and some may leave Australia and avoid any Australian jurisdiction connection.”

“Some digital currency exchanges have had difficulty getting banking relationships, partly because the banks perceive them as a source of money laundering/terrorist financing risk. The barriers to forming banking relationships should be reduced for registered and compliant exchanges,” continue Sneddon, Derham and Freeman. “Also, the regulator will have greater powers to create rules relating to what is or is not digital currency, what special requirements e.g. reporting requirements will be imposed, and how certain technologies will be regulated e.g. stored value cards.”

In announcing the proposals, Australian Justice Minister Michael Keenan spoke of the balance he felt the reforms would achieve in combating crime while also avoiding hindering financial innovation. Sneddon, Derham and Freeman note that how successful the proposed reforms will be in finding this balance will depend on the details of the full Rules on the proposed reforms, which are yet to be released by Austrac. “The Rules can govern matters like threshold transactions reporting limits, and collection and verification of customer requirements,” explain Sneddon, Derham and Freeman. “Whether innovation will be stifled or not will depend on how commercially reasonable the detailed Rules to be made by Austrac will be.”

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