AML Reforms Part 2: Digital Currency Service Providers

By: Daniel Knight and Kithmin Ranamukhaarachchi

The Australian Attorney-General’s Department (Department) has released five consultation papers outlining proposals for extensive reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime.

This post (the second in our series) considers the Department’s proposals related to digital currency service providers, as outlined in Paper 4: Further information for digital currency exchange providers (DCEPs), remittance service providers and financial institutions (Paper 4) (see here).

Capturing All Digital Currency-related Service Providers

In addition to digital currency exchanges (DCE) that exchange cryptocurrency for fiat currency (and vice versa), the Department proposes also to capture digital asset service providers that provide the following services:

• exchanges between different forms of digital assets (ie crypto to crypto exchanges);
• transfers of digital assets;
• safekeeping and administration of digital assets (eg custodial services); and
• participation in and provision of services related to an issuer’s offer and/or sale of a digital asset.

To support the above expansion of the AML/CTF regime, it is also proposed that the term “digital currency” is replaced with “digital asset”. Relevantly, the Department will align with Treasury on its implementation of proposals in the Regulating Digital Asset Platforms Proposal Paper (Digital Asset Reforms Paper). While the Digital Asset Reforms Paper states (rather simply) that a “digital asset refers to a token and its associated entitlements”, Paper 4 notes that the Department is considering the use of terminology such as “crypto asset” and “virtual asset”. It is expected that more clarity will come in the final legislation.

AUSTRAC CEO Powers

The Department proposes to grant the AUSTRAC CEO powers to take action against a DCE providers’ key personnel on grounds of lack of suitability, fitness or proprietary. These powers would include the ability to issue banning orders and suspensions (other similar powers would exist in respect of providers of remittance services). This has the potential to create overlap with the supervisory powers to be granted to ASIC under the Digital Asset Reforms Paper.  We therefore recommend that these powers be aligned to the extent practical.

Travel Rule and IFTI Reporting

The “travel rule” requires reporting entities to ensure that information about payers and payees travels with the transfer of value. In Australia, this has not yet been implemented in full under the AML/CTF regime. Paper 4 proposes to impose this requirement on reporting entities, which will add to the data retention and sharing requirements of DCEs.

Paper 4 also proposes that reporting requirements for international transfers will be applied to transfers of digital assets.