On the chopping block: 100 DCE registrations slated for cancellation

In a press release issued last week, AUSTRAC announced a campaign to target cancellation of remittance registrations following its “use or lose it” blitz on digital currency exchange (DCE) registrations earlier this year. In that context, the AML/CTF regulator quietly confirmed that 100 DCE registrations are slated for cancellation out of a total believed to exceed 400. 22 DCE registrations were handed in. The crackdown targeted DCEs that appear inactive, with AUSTRAC directly contacting businesses that have not demonstrated trading activity (e.g. by making suspicious matter reports).

In a press release announcing the campaign, AUSTRAC Chief Executive Officer Brendan Thomas labelled DCEs a high-risk sector and stated that inactivity opens the door for criminals to exploit a company's enrolment status.

Inactive businesses are vulnerable to being bought and co-opted by criminals…We’re aiming to protect consumer confidence in AUSTRAC registration and limit the potential for improper sale and use of DCE businesses.

As registration with AUSTRAC is a legal prerequisite for offering cryptocurrency-to-fiat services (including crypto ATMs), maintaining an accurate and up-to-date registration is critical. Registrants are required to notify AUSTRAC of a number of matters, including if their business model changes or if they cease to provide DCE services.

The “use or lose it” initiative follows AUSTRAC’s broader push to tighten oversight of digital assets, including new enforcement actions and guidance on anti-money laundering risks related to crypto. DCEs have been in AUSTRAC's crosshairs for some time, having previously moved to crack down on unregistered cryptocurrency ATMs and implemented stronger expectations around AML/CTF compliance for DCEs.

The regulator has also confirmed that it will soon launch a publicly searchable DCE register, allowing customers to easily verify whether a crypto exchange is registered and subject to AUSTRAC’s regulatory oversight. This is a positive development for consumers seeking to assess the bona fides of cryptocurrency exchanges and whether they comply with Australian laws (albeit that the current regime’s scope is limited only to AML/CTF compliance).

With amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) set to enter into force in March next year, the current DCE regime will transition to a VASP regime with a wider range of designated services, more onerous registration requirements and compliance obligations. The Federal Government is also expected to move forward with a broader licensing regime for digital asset custodians under the Australian financial services licensing regime.

For those digital currency exchanges facing cancellation, the choices are stark. For some cancellation of a registration will mean cessation of business activities and likely insolvency. For others, the cancellation of a registration by the AUSTRAC CEO may be the subject of review under administrative law. For others, some combination of restructuring and sale may be possible although the cancellation of a registration may pose a considerable impediment to available options.

AUSTRAC will now turn its attention to the remittance register with a further cleanup campaign and as we approach year end, preparations for the entry into force of significant amendments to the AML/CTF Act which will apply to all reporting entities as well as the virtual asset sector.

Written by Steven Pettigrove