Recording and Recap TRM Talks: Australia

It has been a busy 2023 in Australia with policymakers consulting on crypto licensing, AML/CTF reform and more. With the growth of Australia’s crypto ecosystem has come regulatory scrutiny focused on consumer protection, combating financial crime and creating a modern, risk-based regime for crypto assets. 

In this episode, TRM’s Ari Redbord and Angela Ang were joined by Bradley Brown, Acting Deputy CEO of Regulation and Reform at AUSTRAC, Joni Pirovich, Principal of Blockchain & Digital Assets Services + Law (BADAS*L), and Steve Vallas, Managing Director of Blockchain APAC, to unpack these developments. The discussion covered:

• The challenges affecting the Australian crypto ecosystem
• The current regulatory environment
• AUSTRAC’s work in AML/CTF supervision of digital currency exchanges
• The wants and needs of Australian crypto businesses
• How public and private sectors can work together on a way forward

Watch the video for a replay of the full discussion, or scan the recap below for its key takeaways.

Australia’s crypto ecosystem is growing, but needs to address risk management and financial crime

Crypto is the second most popular investment in Australia after shares, according to a 2022 survey by the Australian Securities and Investments Commission (ASIC). There are now 400 digital currency exchanges registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC) of varying sizes and product scopes, including both international and local businesses.

Yet a recent shift in the local environment may be hitting investor confidence in the Australian ecosystem, explained Mr. Vallas. While the global “positivity around innovation” initially rubbed off on Australia, the conversation is increasingly “dominated by concerns about retail, consumer protection, and scam narratives, and it’s coming at the expense of some of the economic opportunity,” he said. 

From a regulatory perspective, Mr. Brown shared AUSTRAC’s observations from supervising digital currency exchanges (DCEs) since 2018. The digital currency sector continues to be on a journey of “maturity, capacity and capability,” with smaller entities in particular still needing to build up their risk management capabilities. According to Mr. Brown, AUSTRAC partners with law enforcement agencies to combat illicit finance risks such as fraud and scams which are a major focus for the government. However, these issues are not unique to crypto assets, which are but one of the mediums through which laundering activities are perpetrated, among a “myriad of other different commodities.”

Education and public-private partnerships are key to moving forward

Looking ahead, everyone agreed that education and public-private partnership are essential for the industry to progress. Ms. Pirovich pointed to an “education gap” between regulators and industry. She suggested that where there are limited public resources to dedicate to crypto assets, public-private partnerships, potentially in a self-regulatory format like Japan’s, can be an effective way to bring “industry best practice knowledge to bear in performing regulatory and supervisory functions.”

On this front, Mr. Vallas commended AUSTRAC for being “inquisitive all the way through.” Mr. Brown shared that AUSTRAC spends a significant effort in understanding 400 DCEs they regulate, more so than other “pointier ends of the stick.” For example, AUSTRAC has initiated industry surveys to understand the makeup of DCEs, their products and services and the nature of risks that they face. It has also tailored its compliance report requirement for DCEs to get a “better understanding, [...] make the right decisions and engage in the right manner.” 

Noting that the crypto sector and regulators start off speaking different languages, Ms. Ang highlighted the need for both sides to be open to give and receive in the educational process. Public-private partnerships (PPPs) provide an important platform for such exchanges. Mr. Brown outlined ongoing work on this front, including AUSTRAC’s Fintel Alliance. Since 2022, the Alliance has included a working group on virtual assets. It has also produced guides on preventing the misuse of digital currencies, and ransomware. Beyond AUSTRAC, in July 2023, the Australian Competition Consumer Commission launched the National Anti-Scam Centre to tackle fraud and scams. 

‍Crypto businesses want certainty, clarity and proportionality

As Australia moves toward broader regulation for crypto assets, Ms. Ang reiterated that clarity and certainty are top priorities for the industry. “The industry isn’t looking for a shortcut … [or] light-touch regulation. What they are looking for is clarity.” Following the crisis of confidence in the post-2022 crypto sector, they see the benefit of robust regulation, are willing to put in the hard work and want a clear set of rules, she explained. 

Thoughtful and proportionate application of the Financial Stability Board’s principle of “same risk, same activity and same regulation” is also needed, according to Ms. Ang. Many of the same principles of good governance and compliance can be applied to both traditional finance and crypto assets. Yet, as noted in TRM’s response to the Commonwealth Treasury’s token mapping consultation, how this looks at the implementation stage will likely be very different, given key differences between traditional finance and crypto infrastructures, she added.

With a tendency towards caution, Ms. Pirovich observed that Australia has been more of a “fast follower” when it comes to crypto asset regulation. Yet responsible innovators in the space are not sitting idle, waiting for this to emerge. Instead, Ms. Pirovich explained, they are looking to frameworks being devised by pioneering jurisdictions as a basis for their own policies and customer proposition. “It’s that constant navigational exercise of [...] what is the most promising jurisdiction for regulatory certainty, to give yourself a one-to-two-year runway of building with some boundary lines that are likely to remain,” she said. Citing Singapore, Hong Kong, the UK, and the UAE as examples, Mr. Vallas added that there is “more consideration being given to jurisdictions which are a natural home for foreign direct investment.”

‍Australia has its work cut out, but there is hope on the horizon

The TRM Talk concluded with a quick-fire assessment of the near-term future of Australia’s crypto asset sector. 

The panelists provided a mixed picture. Mr. Vallas opined that, though opportunities abound in APAC, Australia trails its regional peers. In his view, “there’s too much work to be done and not enough appetite to do that work.”

The other panelists were cautiously optimistic. Ms. Pirovich believes a paradigm shift is beginning. She expressed hope that existing technology would be leveraged for the identification of market abuse and risk-profiling in a “privacy-preserving manner”. This, she believes, is a key route to raising confidence among Australians. 

Ms. Ang and Mr. Brown focused on the importance of regulatory clarity, which Australia is looking to achieve as it modernizes its AML/CFT regime. Calling on the industry to recognise the role they play in protecting their customers, Mr Brown added his hope that businesses would look for opportunities to be involved in the process of fighting financial crime and fraud. 

For more Australia content, be sure to check out our blog post on crypto-related crime in Australia.