Changes for the digital or virtual assets sector
Virtual assets (referred to as digital currency in the current legislation) are an increasingly popular conduit to represent, store and move value. The virtual asset sector and related technologies continue to develop rapidly. Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime needs to be updated to ensure that the sector is hardened against exploitation by criminals.
AUSTRAC’s Money Laundering in Australia National Risk Assessment 2024 identified digital currency exchanges and digital currencies as an increasing money laundering vulnerability.
Extending regulation to additional virtual asset-related services
The Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (the Bill) would amend the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the AML/CTF Act) to bring in additional designated services from the virtual assets sector.
The additional designated services align with the requirements of the Financial Action Task Force (FATF). FATF Recommendation 15 requires countries to apply AML/CTF regulation to five key virtual asset services:
- exchanges between virtual assets and fiat currencies
- exchanges between one or more other forms of virtual assets
- transfers of virtual assets on behalf of a customer
- safekeeping or administration of virtual assets
- participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.
Australia’s AML/CTF regime currently only regulates exchanges between virtual assets and fiat currencies. The Bill would extend regulation to the four additional services and ensure the AML/CTF Act remains up to date and responsive to criminal exploitation of the sector.
New ‘virtual asset’ definition
The Bill would also amend the current definition of ‘digital currency’ in the AML/CTF Act to a new definition and terminology of ‘virtual asset’. This is to ensure the concept of virtual assets responds to industry developments, and aligns with global terminology used by the FATF.
The new definition defines a virtual asset as a digital representation of value that can be transferred, stored or traded electronically, and functions as any of the following:
- a medium of exchange
- a store of economic value
- a unit of account
- an investment.
The definition also includes a digital representation of value that confers the right to vote on the governance of arrangements connected with a digital representation of value. This would cover governance tokens, which grant the right to vote on the management of decentralised autonomous organisations and may be traded or transferred as a measure of value.
To address regulatory gaps, the new definition is sufficiently broad to capture additional concepts like non-fungible tokens (NFTs) that function as a medium of exchange.
Further, the ‘generally available to members of the public without any restriction on its use’ element of the current definition would be removed. This addresses a regulatory gap created by the emergence of stablecoins minted on public blockchains, where the issuer only intends for it to be used by a subset of the public.
Exclusions
Due to low risk associated with such currencies, Central Bank Digital Currencies are explicitly excluded from the definition of virtual assets, and would instead be considered ‘money’ for the purposes of the AML/CTF Act.
The definition also specifically excludes digital representations of value used exclusively within an electronic game, such as Candy Crush, and customer loyalty or reward points such as FlyBuys.
Implementation and commencement
These changes would commence on 31 March 2026.
AUSTRAC will work with industry to develop guidance and educational materials to support reporting entities transition to, and comply with, the changes to the AML/CTF regime.