Australia may have a rather friendly stance on cryptocurrency however they hold a non-interventionist approach in order to regulate the control and use of cryptocurrency. Understanding Australia’s regulation around cryptocurrency is important as the laws are ever progressing.
The Australian Government’s Attitude to Cryptocurrency
Australia has generally stable jurisdiction for blockchain and cryptocurrency for businesses to operate in. There has been the overall support of fintech (financial technology) with the Government supporting its growth with products that innovate financial services and transact cryptocurrencies. Currently, Australia does not bracket digital currency with fiat currency, essentially the government does not recognise nor treat digital currency the same as “real” money. This has been further amplified with the Reserve Bank of Australia (RBA) having no immediate plans of issuing a digital Australian dollar (eAUD). This however does not mean it is not in future plans as they are and have been exploring it.
Is Cryptocurrency Legal in Australia?
Cryptocurrency and cryptocurrency exchanges became legal in Australia in 2017. Australian laws have been very progressive to accommodate cryptocurrency and its advancements. Cryptocurrencies are legal and are treated as property. The Government has not intervened with cryptocurrency too significantly as there has just been general clarifications. In 2018 digital currencies were caught by the Australian anti-money laundering and counter terrorism financing regime AML/CTF. This has lead to the legal status of cryptocurrencies being subject to the Australian Anti-Money Laundering and Counter Terrorism Financing Act 2006.
Cryptocurrency exchanges are also legal however, must be registered with Australian Transaction Reports and Analysis Centre (AUSTRAC).
Responsibilities from exchanging cryptocurrency include:
- Register them as exchanges
- Identify and verify users
- Keep financial records
- Comply with reporting obligations by the AML/CTF
AUSTRAC targets to prevent cryptocurrencies being used for funding crime or money laundering. However, it is the responsibility of the provider to monitor any suspicious trading. Criminal charges or fines can be obtained for those who do not comply.
Australia’s Cryptocurrency Regulation
Australian Legislative amendments have primarily focused upon transactional relationships and activities involving cryptocurrency.
ASIC’s regulatory guidance notifies businesses of its approach to the legal status of coins. Depending on their structure and rights attached:
- Cryptocurrency that is part of a collective financial investment product under the Corporations Act 2001 falls within the range of existing financial services regulatory regime.
- Lending activities fall within the range of credit activities and services under the National Credit Consumer Protection Act 2009 (Cth).
In regards to blockchain or other Distributed Ledger Technology (DLT) there are no specific regulations that deal with them as of right now. However, ASIC released an information sheet (INFO 219 Evaluating distributing ledger technology). This information sheet talks through the possible issues that can appear through blockchain technology and DLT solutions. It also subjects businesses to compliance requirements if they plan to operate in open market infrastructure as well as using DLT to provide financial or consumer credit services.
The Electronic Transactions Act 1999 (Cth) allows self-executing contracts to be implemented with different cryptocurrency networks. The contracts are permitted as long as they meet the contract requirements in Australia.
Australian Financial Services License (ASFL) must be obtained for cryptocurrency exchanges. These are treated the same way as other financial service providers in Australia.
Corporations Act 2001 (Cth)
The corporations act also focuses on protecting consumers as it requires the identification of crypto-assets as financial products. The Corporations act will also be explored in further detail in regards to sales regulation.
Australia regulates the sale of digital assets and cryptocurrency with the financial services regulatory scheme. Considerations for issuers include:
Understanding whether certain cryptocurrencies are considered as financial products is important as they must hold an AFSL or be exempt. Under the corporations act the definition for “financial products” are broad; however, the ASIC information sheet has expressed that cryptocurrencies with similar features to financial products will have the relevant regulatory obligations arise.
ASIC also indicated that entities that offer coins and tokens can constitute interests and be considered as financial products. This means that there are regulatory requirements under the corporations act such as disclosure, registration, licensing and conduct obligations. An AFSL may also be required for entities that facilitate payments with cryptocurrencies.
A token sale may involve an offer of financial products which have clear implications for the marketing of the token sale. Regulated disclosure documents must be accompanied with a financial product. They must set out information such as fee structure, assistance with deciding whether to acquire the cryptocurrency or not. However, a regulated disclosure document may not be necessary depending on the amount of funds invested. As well as whether the investor is a “sophisticated investor” or a wholesale client.
Cross border issues
Carrying financial service business in Australia requires a foreign financial services provider (FFSP) in order to hold an AFSL. The foreign AFSL is FAFSL which allows the FFSPs to provide wholesale clients with financial services without holding an AFSL.
Foreign companies carrying business in Australia may be required to establish a local presence through establishing a branch, registering with ASIC, incorporating a subsidiary etc. These companies can include those that issue cryptocurrency or operate using ICO funds.
Foreign promoters may not be able to market cryptocurrency to Australians unless the necessary licensing and disclosure requirements are achieved.
Cryptocurrency is viewed as an asset by the ATO and is treated as property for tax purposes. Cryptocurrency has been subject to the Capital Gains Tax (CGT) just like any other property. Before this they had been double taxed under the Goods and Services Tax (GST).
Supplementary cryptocurrency regulations in Australia
Digital currency can be sent and exchanged worldwide. Therefore Australian laws regulate the prohibition of misleading customers. This is found in the general laws of the Competition and Consumer Act 2010 in clauses 20 and 18.
It is important to understand the regulations around cryptocurrency in order to ensure that adhering to Australian guidelines are met. For more information or help with cryptocurrency regulations in Australia, get in touch with our team via the contact form or by calling 1300 337 997.