The-Standard-Banner

The Standard

The Standard is a bi-monthly publication to snapshot financial services regulatory issues and the opportunity to contribute to policy development and submissions.

Bitcoin A Bit Unregulated - AJAF

by Lewis Panther | 14 Nov 2019

Challenges facing regulators in the cryptocurrency world dominated by Bitcoin are revealed in FINSIA’s latest Australian Journal of Applied Finance (AJAF)

Bitcoin A Bit Unregulated by Cecilia Anthony Das, of Edith Cowan University, highlights the global “confusion” that requires “prompt action from the regulators”. 

But the peer-reviewed academic research - co-authored by M Shibley Saddique and Krishna Prasad - recommends going down the route of self governance with regulatory oversight to ensure the growing market isn’t stifled.

Their report shines a light on the vast gap between the benefits and problems associated with the cryptocurrency. 

While it enhances anti-money laundering checks and helps investment banks save $6bn (US) a year, according to Goldman Sachs, another report quoted in the AJAF paper suggests 50% of all bitcoin transactions are associated with illegal activities.

“The regulatory regimes on cryptocurrency are far from satisfactory,” Das says in the paper’s conclusion. 

“Whilst the Australian regulatory bodies regulate bitcoin and cryptocurrencies in general, it is a balancing act between regulating and encouraging the growth of alternative payment systems.

“In order to overcome this lack of regulatory regime, the authors recommend that the cryptocurrency industry be self-regulated. 

“The industry will be better off developing its own standards to be complied voluntarily by all involved. 

“These standards need formalisation and the model of self-regulation may be the subject of regulatory oversight.”

It’s against a Wild West style backdrop that Bitcoin has developed. Its use on the dark web known as the Silk Road is covered by Das and her co-authors, noting it as a “marketplace for drug dealers, gunrunners and document forgers”.

“Analysis led to the conclusion that there was a prevalent reluctance to define cryptocurrencies and take legislative measures. Where effort has been evident, it was inconsistent,” they say.

The Australian experience has seen a toughening approach to AML laws over the past three years with AUSTRAC insisting all digital currency exchange providers to be registered with them.

“Within three years, the Australian government changed its stance as reports from the global watchdog Financial Action TaskForce (FATF) identified major deficiencies in Australian AML laws,” says Das.

“The report acknowledged bitcoin’s legitimate uses and recommended the introduction of strict regimes to combat the funding of domestic and international terrorism.

"As of April 2018, all digital currency exchange providers in Australia are required to register their operations with AUSTRAC.

Elsewhere, judging by the AJAF article there is not much of an appetite to tackle the problem of regulating bitcoin.

It says: “The European Union which provides protection for mobile payment via its Payment Services Directive and E-money Directive has curiously, not included payments with bitcoin. 

“Recently the European Central Bank declared that the regulation of cryptocurrency is beyond its mandate.

“Although European regulators have been quick to point out that cryptocurrency investments are unwise, a dearth of guidance has been given.”

 

Comments

Share this