Crypto exchanges beg for regulation as low bar poses investor risk

The application process for AUSTRAC licensing requires an AML/KYC policy, a pre-written policy that can be obtained easily online, and then an online form.

“The bar is pretty low and anyone can register. We could probably get everything done in a couple of days with a budget of maybe $3000 or $4000,” said Mr Przelozny, pointing out there are hundreds of “registered exchanges” that do not perform any function.

“There also are no rules that prescribe how assets should be stored. Consumers are just hoping custodians are following a procedure that keeps their assets from being lost, but there’s no regulator that ensures this actually happens.”

According to a report by Finder, around one in six, or 17 per cent, of Australians own cryptocurrency, a 12 per cent lift since January. Despite wild fluctuations in price, retail investors are increasing their exposure, not only to bitcoin, but to other protocols such as Ether.

Criticism has been levelled at ASIC for failing to better police the growing cryptocurrency sector, but until legislation is developed, both Australian exchanges at Friday’s hearing said the regulator could provide little assistance.

The lack of regulation is also compounding the “unbanking” problem, whereby crypto businesses cannot access banking services provided by major financial institutions.

Swyftx, another digital currency exchange with more than 120 employees based out of Brisbane, pointed out the failure to regulate around crypto asset custody means Australia’s banks are reluctant to interact with growing crypto businesses.

“We can’t get proper banking, and we’ve built certain things within our platform that are ready to go but we can’t launch them because of the uncertainty,” said Alex Harper, chief executive of Swyftx.

“If you talk to two lawyers you get two different answers because there’s not enough clarity, and the existing regulation doesn’t properly capture the way these tokens actually operate.”

In contrast to Australia’s lax crypto custodian regulation, last week Independent Reserve was granted in-principle approval from the Monetary Authority of Singapore to offer digital payment token services.

The application process, which had around 170 applicants, required the Sydney-based exchange to display the robustness of its customer protection mechanisms, transaction screening, IT services, compliance structures, and AML/CFT processes.

“In Australia, there’s nothing like that,” said Mr Przelozny.

The Committee on Australia as a Technology and Financial Centre is chaired by Liberal Senator Andrew Bragg and is due to deliver a final report in October.