Expanding AML Requirements For Digital Currency Exchanges

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The Australian Government has committed to reforming Australia's AML/CTF regime, with proposed reforms set to impact digital currency exchange (DCE) providers.
Australia Government, Public Sector
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The Australian Government has committed to reforming Australia's AML/CTF regime, with proposed reforms set to impact digital currency exchange (DCE) providers.

The proposed reforms impacting DCE providers

In April 2023, the Attorney-General released the first of two consultation papers outlining proposed changes to the AML/CTF framework.

The consultation paper contemplates reforms that will directly impact DCE providers including:

  • extending AML/CTF obligations to crypto-to-crypto exchange and custody (rather than just fiat on and off ramps); and
  • Requiring DCE providers to comply with the "travel rule".

The paper indicates that the reforms will be aligned with any broader reforms of the digital asset sector as are currently under consideration by Treasury, such as the possible introduction of licensing requirements for DCE providers and other service providers.

Crypto to crypto exchange

Currently, DCE providers are only captured by the regime where they exchange digital currency for fiat currency or vice versa, such as the exchange of cryptocurrency to AUD.

The reforms propose to extend the regime to:

  • Exchanges between one or more other forms of digital currency;
  • Transfers of digital currency on behalf of a customer;
  • Safekeeping or administration of digital currency; and
  • Provision of financial services related to an issuer's offer and/ or sale of a digital currency.

Travel rule

In addition, the reforms propose to extend the application of the "travel rule" to digital currency exchange providers and remitters.

Currently, the travel rule does not apply to DCE providers, but only to financial institutions. It requires financial institutions to include payer information in electronic transfers of fiat currency to increase the transparency of transactions.

The reforms propose to both extend the travel rule requirement to DCE providers, as well as providers of remittance services, and to expand the requirements of the travel rule. The updated travel rule will require entities to include both payer and payee information in electronic transfers and will require payer information to be verified.

The proposed reforms are subject to consultation with industry, with the Attorney-General's Department to release a further consultation paper later in the year following feedback from stakeholders. Submissions are open on the initial consultation paper until 16 June 2023.

Other changes

In addition, the consultation paper outlines a range of other proposed reforms which aim to strengthen and modernise Australia's AML/CTF regime. The paper contains two parts:

  • Part 1 details reforms to simplify and modernise the operation of the regime. This part responds to calls from industry to streamline the obligations under the AML/CTF regime, as well as addressing recommendations made by the 2016 Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
  • Part 2 proposes to extend the operation of the regime to "tranche-two entities", including lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones in specified circumstances. This part aims to align Australia's regime with international standards, including the recommendations of the Financial Action Task Force.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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