One of America’s closest allies, Australia, just released new regulatory guidelines today on how cryptocurrency exchanges are allowed to operate. Among the key highlights of the rules, crypto exchanges must have a comprehensive AML, CTF, and KYC program in place, notify authorities of transactions surpassing $10,000 AUD, and keep customer records for seven years.
Given the SEC’s recent crackdown on Initial Coin Offerings, and their announcement in March that online trading platforms may potentially be operating unlawfully, the question becomes, will America follow Australia’s lead? Is a unified global approach more suitable? And how have blockchain leads taken the news?
Please find below the reaction to the policy announcement from some of the leading crypto experts:
“The Australian approach treats exchanges more or less as money services business, in-line with many other jurisdictions in the world. Cryptocurrency exchanges, like fiat currency exchanges, are deputized to help law enforcement identify money launderers. They have a risk-based approach for transaction reports under the standard $10k threshold, and automatic reports for transactions above $10k. So, standard practice for most currency exchanges. The aspect that is important to monitor going forward will be the performance of the agency the cryptocurrency exchanges report to, 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:
“On first glance, what Australian regulators are implementing appears some similar to what other regulators around the globe already established. These are KYC/AML rules that we’ve seen in other markets, such as the United States. 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, said:
“It’s not surprising that AML rules are applying to businesses in blockchain and cryptocurrency. Australia’s updates move closer to regulatory requirements that are already in place in the U.S. ($10K reporting threshold vs AUD 10K ~ USD 7K in 2014). The Polymath platform was designed with these regulations in mind, as a proactive approach to regulators is more productive in the long-term.”
David Fragale, Co-Founder of Atonomi, said:
“U.S. regulation of cryptocurrency exchanges is often misunderstood. In light of Australia’s announcement requiring crypto exchanges to comply with anti-money laundering (AML) and counter threat finance (CTF) requirements, it is important to note that the U.S. does in fact regulate U.S.-based crypto exchanges and requires them to comply with U.S. Department of Treasury’s FinCEN’s Bank Secrecy Act (BSA). Crypto exchanges based in the U.S., or with U.S. account holders, must register as a Money Services Business (MSB) with each state and establish compliance programs to do background checks on each customer, monitor and report on suspicious trade activity on the blockchain, and perform enhanced due diligence procedures on customers and customer’s customers. The notion that the U.S. does not regulate crypto exchanges is not accurate. Crypto exchanges are regulated just as any other U.S. financial institution or money transmitter because FinCEN classifies virtual currency as currency. Confusion often arises due to the IRS defining cryptocurrency as property, the CFTC defining cryptocurrency as a commodity, FinCEN defining cryptocurrency as a currency, and the SEC defining cryptocurrency as a potential security.”
Rafael Delfin, Head of Research, Brave New Coin:
“Australia’s policy developments should be welcomed by the general public as a step toward dissuading any potential illegal use of cryptographic assets without hindering further innovation and adoption of these assets.
At the federal level in the US, the CFTC has authority to oversee the market of cryptographic assets derivatives – for example, futures and options – while the SEC oversees markets in securities, meaning distinctions between cryptographic assets behaving mostly as currency, for example Bitcoin, Ethereum, and Zcash) versus tokens being masqueraded as cryptocurrencies that are in fact securities – specifically, tokens sold to the public that give people an interest in the profit that will be derived from the issuer’s efforts.
However, crypto exchanges in the US don’t have a preeminent regulator for oversight. For the US to implement a nation-wide policy similar to Australia would require federal harmonization of current money transmission licenses that are issued at the state level. State laws do offer consumer and investor protection but at the expense of high compliance costs for exchanges needing to apply for a license on every single state, they wish to do business.
Based on this regulatory framework, it is likely that states will start introducing similar AML regulations to crypto exchanges, but it will be slightly more difficult to implement a similar measure nationwide.”
Gabriel Schillinger, CEO of Gamma:
“It’s great to see Australia’s AUSTRAC announce regulations and guidance for crypto exchanges. This gives our industry more insight into what the regulators across the globe are looking to do to combat scams and help the industry mature. America will follow suit, and when the SEC provides its guidance, this will let crypto exchanges and blockchain businesses know exactly how to operate in the US.”
Joseph Weinberg, Shyft Chairman & OECD Think Tank Special Advisor:
“This is long overdue and a great step forward for the crypto ecosystem. The legislation was created last May with the Australian Digital Commerce Association and 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 caliber 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 that 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.”
Loretta Joseph, Chair of the Australian Digital Commerce Association & Shyft Advisor:
“The ADCA worked very closely over the last 18 months with 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. 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.”
Arnold Spencer, Coinsource General Counsel and former Attorney for the US Department of Justice:
“Since 2013, U.S. based digital currency exchanges have been required to conduct anti-money laundering measures and to register with FinCEN. Australia’s new regulations reflect broader trends. 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 ICO’s. A third country passes new tax policies. But no one seems to have a comprehensive, forward-thinking digital currency strategy.”
What do you think will happen in other countries?