Bragging rights for Australia? The Senate’s twelve recommendations for regulating cryptocurrencies and digital assets and improving Australia’s international competitiveness

This proposal establishes a middle ground between the present light regulation of DCEs (for AML/CTF compliance only) and the heavy regulatory burden of a full market licence regime that governs a handful of licensed tier 1 and tier 2 market operators.

This proposal appears to be relevant to centralised DCEs only. It is unclear how this proposal could apply to decentralised DCEs.

Currently, Australia’s custodians for traditional financial and physical assets hold approximately AUD $4 trillion in value.
It is thought that by establishing a custodial regime for digital assets Australia could extend is existing reputation for custodial arrangements to digital assets also.

To do this, the new Australian laws would need to address the unique challenges posed by digital assets, in particular any loss or theft of private keys of crypto assets.  For more information on risk allocation for the loss or theft of private keys, see our publication on Risk Allocation for Hacking and Insolvency of Cryptocurrency Exchanges

To date, DAOs have had a nebulous legal structure and are at risk of being classified as partnerships, attaching joint and several liability to participants. The Report’s recommendation for a novel company structure aims to address this concern and to continue to promote further innovation in the DeFi sector, a $100 billion sector with forecasted growth in the trillions.

The Travel Rule is the name given to FATF’s 2019 Recommendation 16, originally intended for banks, but expanded by FATF to virtual asset service providers (VASPs). For value transfers over the USD 1,000 threshold, the rule requires originating VASPs to:

• obtain and hold accurate originator information and the required beneficiary information;
• submit that information to the beneficiary VASP immediately and securely; and
• make the information available on request to appropriate authorities.

Although the FATF Recommendation says it is not necessary for the above information to be attached directly to a virtual asset transfer, in the blockchain context the rule effectively requires the information to “travel” together with the data movement that constitutes the transfer.

The Report appears to accept both sides of the arguments: it accepts the underlying reason for the travel rule (minimising money laundering and the funding of terrorism) but suggests that technological solutions could be found to achieve that aim in a way that does not undermine innovation.  The Opposition Senators on the Committee issued an additional comment noting that the Report does not identify a technological solution and adding that, as of July 2021, FAFT had noted that there had been insufficient advancement in the global implementation of the travel rule and the development of associated technological solutions.

The ACCC investigated potential breaches of the Competition and Consumer Act 2010 (“CCA”)) as a result of de-banking. The ACCC took the position that a more effective due diligence scheme would assist in determining whether the denial of banking or payment services raised concerns under the CCA.

The impact on competition was examined by the ACCC as part of the 2019 inquiry into the supply of foreign currency conversion services in Australia. The inquiry found that de-banking raised costs for particular groups, such as:

• new international money transfer entrants seeking banking services; and
• existing non-bank international money transfer suppliers.

The implementation of the due diligence scheme proposed by the ACCC would provide an opportunity for international money transfer suppliers to address the due diligence requirements of banks and also for providers of payment system infrastructure. This would allow these international money transfer suppliers to have efficient access to banking and payment services, with positive consequences for their ability to provide services to Australian consumers.

“De-banking”, also known as “un-banking”, is when a bank chooses to no longer service a customer. This illustrates the significant power which banks have over their customers, as banks currently do not need to provide any explanation / reasons for such a decision. The consequence of this is that a customer who has been de-banked may be unable to understand, and thereby resolve, the issue going forward, which could lead to their being de-banked by another financial institution yet again.

This problem has affected mostly fintechs, and in particular including, but not limited to, providers of international money transfers and digital currency exchanges. The result for affected businesses, from a practical point of view, is that their access to a bank account is severed, along with their ability to access infrastructure which is critical to their day-to-day operations. Because of the prevalence of the problem and its profound impact on fintechs, there are usually further consequences for such businesses, including legal processes and time spent securing feasible alternatives. That is, if adequate alternatives can be found at all, given that many banks take the same approach on the matter.

It is also worth noting that Australians have no ‘right’ to banking services, notwithstanding the rise of online commerce and the significant drop in the use of cash.