AML Requirements for Crypto Exchanges

Posted by Kelvin Chandran on 9/16/18, 10:46 AM
Kelvin Chandran
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AML Requirements for Crypto Exchanges

Cryptocurrency exchanges have long been an important part of the emerging digital currency marketplace. In recent years, issues like crypto exchange security and money laundering schemes have plagued the development of the crypto finance ecosystem.

In this post, we’ll examine the current landscape of AML policies as well as how exchanges can better prepare for current and future regulations.

The Current State of Crypto Exchange Security and AML Compliance

Crypto exchange security is one of the biggest factors preventing mainstream cryptocurrency adoption. For exchanges, security (or lack thereof) doesn’t just impact the number of users and revenues. It also presents a serious legal challenge for both existing and up-and-coming exchanges.

The Coincheck hack of January 2018 has made governments around the world rethink the future of the role of crypto in finance. With this, we have seen a massive wave of regulations. For example, Japan’s Financial Service Agency (FSA) issued business improvement orders to a number of cryptocurrency exchanges. The FSA also sent two suspension orders and its first-ever license rejection.

What makes these decisions so crucial is that the FSA not only cited security vulnerabilities but also a lack of AML measures. In addition, a Japanese self-regulatory group of cryptocurrency exchanges banned member platforms from listing anonymous cryptocurrencies such as Monero and Dash in an effort to meet AML compliance regulations.

While the Coincheck hack and other crypto exchange security issues did have an impact on Japan’s domestic-based exchanges, other crypto finance policies have also begun to form in nations throughout the world as a result.

Finance and Crypto: Understanding AML Policies for Exchanges Based in Australia and New Zealand

2018 has been a year filled with new AML policies throughout the world. Let’s take a look at what changes we’ve seen in Australia and New Zealand and what impact these regulations may have on the future of both domestic and international markets.

Australia

On April 3, 2018, the Australian Transaction Reports and Analysis Centre (AUSTRAC) began the regulation of digital currency exchanges (DCEs) under new AML/CTF laws in Australia made through amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. All DCEs were required to register with AUSTRAC by May 14, 2018.

According to a report published by PwC, cryptocurrency exchanges are generally trying to comply with existing regulations. Of the seven major DCEs in Australia, two had already registered within the first two weeks of policy implementation. Blockbid, which plans to begin operations in 2019, even became the first to register as a prospective exchange in Australia.

The takeaway from these new policies is that cryptocurrency isn’t being treated unfairly by the Australian government. On the contrary, this puts crypto in the same category as fiat when it comes to the enforcement of AML/CTF laws in Australia.

New Zealand

If you provide a ‘financial service’ related to cryptocurrencies in New Zealand, you need to comply with the ‘fair dealing’ requirements in the Financial Markets Conduct Act 2013 (FMC Act). This legislation includes many aspects beyond just the regulation of exchanges. It also details policies for AML compliance of wallets, deposits, broking and ICOs.

Both exchanges that do and don’t utilise their own native cryptocurrency to facilitate trading fall within categories of the FMC Act. In addition, exchanges that offer a financial product must also comply with this law.

Even with laws in place, there have been calls to increase clarity on regulations in New Zealand. According to a report published by the Edmund Hillary Fellowship (EHF), the Australia Tax Office "has issued three iterations of guidance on taxation of Bitcoin". As of March 2018, the New Zealand Inland Revenue Department (IRD) has yet to issue clarifications.

Yes, there are a few places globally that are considered “crypto havens” that have few regulations and several locations (i.e. the United States) where clarification of existing laws or the formation of new laws is needed. Still, the general trend in Australia, New Zealand, and most places around the world is an increased focus on making sure that AML regulations apply to crypto exchanges.

SingleSource: Easier AML Compliance for Exchanges

Meeting the demands of AML laws is an increasingly important and necessary step for exchanges looking to gain greater legitimacy and mainstream adoption.

One of the fundamental parts of creating a successful cryptocurrency exchange is to be proactive in maintaining security. However, this is only one part of the solution. The future of crypto in modern finance is also reliant upon the formation of clear regulations as well as solutions that make compliance practical and affordable.

In the past, the process of AML compliance has been arduous, and costly. Today, however, tech-driven solutions solve these issues and make it possible to improve the future viability of crypto exchanges.

Our blockchain project, SingleSource, is working to improve the future of AML compliance by simplifying the process of completing KYC checks. If you’re interested in discovering more about how SingleSource works, download our whitepaper here.

Download the full whitepaper here

Topics: Fraud prevention, crypo investment

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