The local financial technology (fintech) scene has pushed Australia to the forefront of this industry. A broad range of product offerings from the Australian fintech community, as well as the Commonwealth Government of Australia's commitment to encouraging growth and innovation in the industry, have contributed to Australia's reputation as a stable and fintech-friendly nation. While there has been a rise in regulative engagement, particularly since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) concluded in 2019, FinTechs have seen an opportunity to grow and position themselves in Australia's economy. Businesses in the payments, lending, investing, and custodial services sectors have all contributed to the sector's growth in Australia.
To date, the government has adopted the mostly non-interventionist stance to cryptocurrency legislation, enabling the environment to change faster than the government's response. Presently, Australian law does not equate digital currency with fiat currency, and cryptocurrency is not considered "money."
The Governor of Australia's central bank, the Reserve Bank of Australia (RBA), has stated that the RBA has no imminent intentions to create a digital dollar that functions similarly to money. The Governor, referring to it as an "eAUD," said that while the emergence of new technologies linked with cryptocurrencies has the potential to disrupt established financial institutions' role in payments, there is presently no public policy rationale for the RBA to issue an eAUD. Despite this, the Governor stated that the RBA is open to wholesale applications for an Australian digital dollar and that the RBA would continue to explore this issue with ongoing investigations of the usage of a central bank-issued digital currency.
While the government has not taken a substantial role in cryptocurrencies and associated activities, the application of Australian regulatory regimes to the sector has been clarified. The Australian government, for example, approved the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 (AML/CTF Amendment Act), which included cryptocurrencies and tokens in the anti-money laundering framework. This acknowledged the trend toward digital currencies being a popular way to pay for goods and services and transfer value in the Australian economy while also posing serious money laundering and terrorism financing threats.
While legislative changes have been made to allow for the usage of cryptocurrencies, they have mostly focused on transactional connections (such as the issuing and exchanging process) and activities using cryptocurrencies instead of the cryptocurrencies themselves.
The Australian Securities and Investments Commission (ASIC), Australia's primary business, markets, consumer credit, and financial services regulator, has restated its position that legislative and regulatory requirements are technology-neutral and apply regardless of the mode of technology used to provide a regulated service. While no legislation has been enacted to deal with cryptocurrencies as a separate field of law, this does not prevent them from being included in current legal frameworks in Australia.
The ASIC's regulatory guideline notifies companies about ASIC's approach to currencies' legal status (or tokens). The legal status of such currencies is determined by how they are organized and the rights connected to them, which in turn dictates the rules that must be followed. For example:
- Cryptocurrency classified as a financial product under the Corporations Act 2007 will be subject to Australia's current financial services regulatory system.
- There has also been an increase in the number of lending operations involving cryptocurrency. To the extent that certain lending operations come within the scope of credit activities and services covered by the National Credit Consumer Protection Act 2009, the relevant companies may be required to obtain an Australian credit license or be exempt from licensing requirements.
Several cryptocurrency networks have adopted self-executing or "smart" transactions. The Electronic Transactions Act 1999 and the corresponding Australian state and territory legislation allow for this in Australia. The ETA establishes a legal framework that allows electronic commerce to function similarly to paper transactions. Self-executing contracts are permissible in Australia under the ETA as long as they fulfill all of the usual legal contract requirements.
Money Transmission Laws and Anti-Money Laundering Requirements
Despite current attempts by the Australian Taxation Office (ATO) to explain the functioning of the tax legislation, the taxation of cryptocurrencies in Australia has been a source of significant dispute. The ATO considers cryptocurrencies to be an asset that is kept or exchanged rather than money or a foreign currency for income tax purposes.
The AML/CTF Amendment Act was approved by the Australian government in 2017, bringing cryptocurrencies and tokens within the anti-money laundering and counter-terrorism financing regulatory framework. The modifications came into effect on April 3, 2018, and are aimed at the point where cryptocurrencies and the regulated financial industry collide, especially digital currency exchanges.
In essence, digital currency exchanges must now register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) in order to operate, with failure to do so carrying a penalty of up to two years in prison or a fine of up to A$111,000, or both. Registered exchanges will be expected to establish know-your-customer processes in order to fully authenticate their clients' identities, as well as monitoring and reporting responsibilities for suspicious and big transactions. Exchange operators must also preserve for up to seven years certain records pertaining to client identity and transactions.