Australia Proposes Stricter Crypto Regulations to Combat Financial Crime

December 12, 2024 — Australia has unveiled a set of proposed reforms aimed at tightening the country’s oversight of the cryptocurrency sector, particularly targeting anti-money laundering (AML) and counter-terrorism financing (CTF) measures. These new rules, introduced by the Australian Transaction Reports and Analysis Center (AUSTRAC), aim to combat financial crime by enhancing the regulatory framework for digital assets, legal services, and real estate.

Stricter Oversight and Enhanced Due Diligence

The proposed regulations are part of broader amendments to Australia’s AML/CTF Act that were passed in November. The updated framework is designed to close existing regulatory gaps, increase oversight of high-risk sectors, and implement stricter customer due diligence (CDD) protocols. The reforms also call for more rigorous reporting obligations and enhanced scrutiny of businesses within the crypto, financial services, and real estate sectors.

The draft rules are open for public consultation until February 14, 2025, giving industry stakeholders—including crypto exchanges, legal professionals, and real estate businesses—the opportunity to provide feedback before the final version of the framework is adopted.

Expanded Regulatory Coverage

The proposed reforms would introduce more stringent regulatory oversight for high-risk sectors. Among the most notable changes are stricter CDD requirements for cryptocurrency exchanges, as well as improved reporting protocols for international transactions under the Travel Rule. The Travel Rule mandates that crypto businesses report certain cross-border transactions, which aims to reduce the risk of illicit activities.

Under the proposed framework, businesses will be required to verify customer identities based on a risk-based approach. Additionally, crypto businesses will need to monitor suspicious transactions and ensure transparency in cross-border asset transfers, enhancing Australia’s ability to identify and prevent financial crime.

Reducing Compliance Burdens

While the new rules aim to tighten regulation, they also seek to ease compliance burdens for businesses. The proposed reforms introduce an outcomes-based compliance model, replacing the current prescriptive structure. This new model allows businesses to tailor their compliance measures based on factors such as size, structure, and risk profile, while still maintaining rigorous standards to prevent financial crime.

The proposal also includes updates to the AML/CTF General Rule 2025 and the AML/CTF (Exemptions) Rule 2007, which aim to maintain necessary exemptions from previous regulations while eliminating outdated requirements to ensure stability and continuity in the regulatory framework.

Focus on Crypto and Financial Services

AUSTRAC’s proposal signals continued efforts by the Australian government to enhance regulation in the crypto industry. In addition to the changes to AML/CTF rules, AUSTRAC has been ramping up its focus on the broader digital assets ecosystem. Just days before announcing the draft rules, on December 6, AUSTRAC formed a dedicated task force to oversee the operations of crypto ATM providers. The task force aims to ensure that operators meet minimum standards, preventing illicit financial activities from being funneled through crypto ATMs.

This task force marks the first step in a broader effort to reduce the criminal use of cryptocurrencies in Australia, ensuring that businesses involved in the digital asset space adhere to regulatory requirements that help protect the financial system from misuse.

Next Steps for Stakeholders

With the consultation period open until February 14, 2025, stakeholders in the financial and crypto industries have a limited window to weigh in on the proposed changes. AUSTRAC’s request for feedback reflects the government's ongoing commitment to improving regulatory standards, ensuring that Australia's financial landscape remains secure and resilient against financial crime.

As the consultation period progresses, Australia’s increased focus on tightening crypto regulations continues to underscore the country’s growing efforts to foster a safer and more transparent digital assets ecosystem. The proposed reforms reflect a proactive stance in addressing emerging risks associated with cryptocurrencies, positioning Australia as a leader in the regulation of digital assets.