As cryptocurrency usage increases, so  do cryptocurrency regulations around the world. The crypto landscape is constantly evolving and so it is imperative to keep up to date with the rules and regulations in different countries. 

To help you navigate the various regulations surrounding cryptocurrencies, we’ve created a Country Guide for Crypto Businesses in Australia. Our Country Guide will help you understand how the country approaches regulating exchanges and coin markets. It also explores the various aspects of cryptocurrency regulation. 

The Latest Crypto AML Regulatory Developments in Australia 

Blockchain Australia emphasized its support for regulation of custodial exchanges 

On November 17, 2022, Blockchain Australia, the main industry body in Australia representing members of the blockchain and digital assets community, issued a press statement, urgently calling for regulation of custodial exchanges to protect consumers. 

According to Blockchain Australia, the recent collapse of FTX Digital Markets (FTX) is likely to lead to significant financial impacts on many Australian users.  They maintain the collapse will tarnish the excellent reputation and work of the Australian digital currency exchanges, which meet industry standards and the Blockchain Australia Code of Conduct.    

Blockchain Australia also emphasized their support for the Australian Government’s move to open consultations to safeguard crypto custody arrangements and regulate exchanges next year.  

On August 22, 2022, the Australian Government announced that it would ‘token map’ the crypto sector, stating that this work has not been carried out anywhere else in the world to date, so will make Australia leader in this area.   

 The Australian Government plans to start consultation with stakeholders on a framework for industry and regulators, allowing consumers to participate in the market while better protecting them. The aim is to identify notable gaps in the regulatory framework, progress work on a licensing framework, and review innovative organizational structures. It will also look at custody obligations for third-party custodians of crypto assets and provide additional consumer safeguards. 

Blockchain Australia reiterated their stance calling for regulation, stating that their advocacy supported submissions to Senate Inquiry into Australia as a Technology and Financial Centre which culminated in the Senate Report; and submissions to both the CPC343 and Report 705 which was led by the Australian Securities and Investment Commission (ASIC). 

Those custody principles for crypto-assets via a regulated investment vehicle are now part of INFO 225 published by the Australian Securities and Investments Commission (ASIC) and include: 

• That crypto-assets should be segregated on the blockchain; 
• That private keys used to access crypto-assets should be generated and stored in a way that minimizes the risk of loss and unauthorized access;  

• That signing approaches that minimize ‘single point of failure risk’ should be adopted; 
• That robust systems and practices for the receipt, validation, review, reporting and execution of instructions for dealing with segregated assets should be in place; 
• That robust cyber and physical security practices should be in place, including appropriate internal governance and controls, risk management and business continuity practices; 
• That cybersecurity practices and controls environment should be independently verified to an appropriate standard and certification or attestation. 

Definition of Financial Services in Australia  

 The definitions of “financial product” or “financial service” under the Corporations Act are broad. ASIC has indicated in its information sheet, INFO 225  that cryptocurrency with features similar to existing financial products or securities will trigger the relevant regulatory obligations.   

The Licensing Regime in Australia for Cryptocurrencies 

Of particular concern to those dealing with cryptocurrencies is whether the relevant cryptocurrency constitutes a financial product triggering financial services licensing and disclosure requirements. 

Entities carrying on a financial services business in Australia must hold Australian Financial Services License (AFSL) or be exempt.  

Status of Cryptocurrencies in Australia 

According to ASIC the legal status of cryptocurrency depends upon the structure of the initial coin offering (ICO) and the rights attached to the coins or tokens. 

 Depending on the circumstances, coins or tokens may constitute interests in managed investment schemes (collective investment vehicles), securities, derivatives, or fall into a category of more generally defined financial products, all of which are subject to the Australian financial services’ regulatory regime. In INFO 225, ASIC provided high-level regulatory signposts for crypto asset participants to determine whether they have legal and regulatory obligations. 

These signposts are relevant to: 

• crypto asset issuers,  
• crypto asset intermediaries, 
•  miners and transaction processors,  
• crypto asset exchanges and trading platforms,  
• crypto asset payment and merchant service providers,  

• wallet providers and custody service providers, and consumers. 

Generally, entities offering coins or tokens that can be classified as financial products must comply with the regulatory requirements under the Corporations Act, which includes disclosure, registration, licensing and conduct obligations.  

Entities that facilitate payments by cryptocurrencies may also be required to hold an AFSL and the operator of a cryptocurrency exchange may be required to hold an Australian market license if the coins or tokens traded on the exchange constitute financial products. 

ASIC’s Regulatory Approach to Cryptocurrencies 

ASIC’s regulatory guidance is consistent with the position of regulators in other jurisdictions. ASIC has also recommended that companies wishing to conduct an ICO or other token sale seek professional advice, including legal advice, and contact its Innovation Hub for informal assistance. 

This reflects its willingness to build greater investor confidence around cryptocurrency as an asset class. However, ASIC has emphasized consumer protection and compliance with the relevant laws and has acted to stop proposed token sales targeting retail investors due to issues with disclosure and promotional materials as well as offerings of financial products without an AFSL. 

Crypto Anti-Money Laundering and Counter-Terrorism Financing Requirements 

Since 2018, digital currency exchange (DCE) providers are required to register and enroll with the Australian Transaction Reports and Analysis Centre (AUSTRAC) as a reporting entity under Australia’s AML/CTF regulatory framework.  

There is a penalty of up to two years imprisonment or a fine of up to A$111,000, or both, for failing to register. Broadly, registered exchanges will be required to implement know-your-customer (KYC) processes to verify the identity of their customers, with ongoing reporting obligations such as annual compliance reporting and the requirement to monitor and report suspicious and large transactions. 

Exchange operators are also required to keep certain records relating to customer identification and transactions for up to seven years. DCE providers are required to renew their registration every three years. 

The DCE sector has been of interest to AUSTRAC, particularly monitoring the ML/TF risks associated with digital currency. In June 2021, AUSTRAC promoted the Financial Action Task Force’s (of which Australia is a member nation) red flags guidance for indicators of ML/TF, which sets out best practices for regulators and reporting entities and is expected to inform how AML/CT legislation relating to digital currency is developed. 

What Crystal does for Crypto Businesses? 

Crystal is the world-leading all-in-one blockchain analytics tool for crypto AML compliance, providing blockchain analytics and crypto transaction monitoring for thousands of cryptocurrencies in real-time. 

Crystal Blockchain works globally with customers in the digital asset industry, the banking, and FI sectors. We help streamline their Know Your Transaction (KYT) and Anti-Money Laundering (AML) procedures for meeting international compliance standards. 

Crystal monitors blockchain transactions (up to 100,000 hops) from which the user receives a clear understanding of all fund flow history, follows transaction patterns, and can identify the sources of funds. Crystal provides a compliance risk assessment scoring feature from which the user is notified of potentially irregular activities associated to transactions, wallet addresses, entities, and counterparties. The risk scoring feature provides insights and intelligence of the user’s exposure to certain risks and can successfully mitigate risks associated to the customers, transactions, and counterparties. Crystal observes and monitors 24/7 changes in regulations, sanctions list to ensure its solution is up-to-date with the global crypto AML, CTF, and Sanctions Compliance trends. 

Crystal’s Regulatory & Compliance experts are helping you transform regulations into adequate risk management. Stay ahead of the change and the coming regulatory frameworks and sanctions with the help of our compliance team. For any compliance-related questions, please get in touch with us at: [email protected]