So you’re planning on opening a cryptocurrency (e.g. Bitcoin, Altcoin) exchange

Bitcoin and other cryptocurrencies have seen a significant value increase in the recent past.  If you had the foresight to invest in Bitcoin and Ethereum in January 2017, you would have made 177% and 4,314% respectively.  We have seen a trend towards people starting their own cryptocurrency exchanges.  If you’re offering or planning to offer a cryptocurrency business or exchange, it would be prudent to seek legal advice.

You may have already done some research and found that bitcoin is not currently regulated by ASIC as a financial product in Australia.  But this is not the end of things.  Depending on the structure of your business, it could be possible that you may require an Australian Financial Services Licence (AFSL).  Also, you may be providing a designated service, which will require you to comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act).  And then there’s GST and other issues.

Do you need an AFSL?

An AFSL authorises a business to provide particular financial services in relation to specific financial products, to clients.  Although bitcoin is not currently treated as a financial product by ASIC, depending on your business, you may be providing a financial service in relation to a financial product, for example, foreign exchange contracts and non-cash payment facilities.  We can advise you as to whether your current or proposed business operations will require you to acquire an AFSL.

Are you currently regulated under AML/CTF?

You will also be required to comply with the AML/CTF Act if you provide a designated service.  Currently, there are a number of designated services, none of which directly apply to bitcoin or other cryptocurrencies (unless they are backed by bullion or precious metal).  But, depending on your business, you may be providing other designated services, for example, giving effect to a remittance arrangement, (transferring money or property (such as cryptocurrency) for another person, or, as an agent for another person, acquiring or disposing of a foreign exchange contract).  We can provide you with advice as to whether your business operations mean you are providing or may provide a designated service, and if so, how you can comply with the AML/CTF laws.

Upcoming AML/CTF changes to cover cryptocurrency

Even though there are currently no designated services which directly cover bitcoin and cryptocurrencies, there was a statutory review of the AML/CTF Act last year which recommended regulating the exchange of “one currency (whether Australian or not) for a digital currency and vice versa where the exchange is provided in the course of carrying on a digital currency exchange business”.  Cryptocurrencies are covered by the proposed definition of digital currencies.  This proposed change is likely to proceed and is expected to commence in 2018.

A number of cryptocurrency exchanges are voluntarily moving towards AML/CTF compliance now, even if currently their business does not fall within the AML/CTF Act.  If you want to do this, we can provide you with information and strategies as to how to move towards AML/CTF compliance and minimise your AML/CTF risks.  As the proposed new AML/CTF laws covering cryptocurrencies become clearer, we can also provide you with advice and assistance in complying with these laws.

Would you like to know more?

Authors: Alexa Bowditch (Previously a Lawyer at Holley Nethercote) and Mark Sneddon (Previously a Special Counsel at Holley Nethercote)