Australia Struggles To Balance Innovation And Bitcoin Regulation

In a speech at Carnegie Mellon University, Chair of the Australian Securities and Investment Commission, Greg Medcraft, outlined the risks and rewards of blockchain tech. He explained that distributed ledger technology could provide greater efficiency, speed, disintermediation, reduced transaction costs and improved market access.

"Naturally, harnessing this potential will depend on the integrity, capacity and stability of blockchain technology processes. It will also depend on industry’s willingness to invest in, and make use of, new ways of settling and registering transactions,” he stated.

"The potential is, nonetheless, enormous. Industry is seeing that potential and is looking to see how it and the markets might benefit."
— – Greg Medcraft

Medcraft believes that it is imperative that these opportunities are harnessed for broader economic benefits, without standing in the way of innovation and development.  “At the same time, we need to mitigate the risks these developments pose to our objectives. We also need to ensure those who benefit from the technology trust it."

With this goal in mind, the Australian Securities and Investment Commission (ASIC) has developed an online hub with tailored content for FinTech businesses that are developing innovative financial products and services. "We will continue to review the current regulatory framework, analyse how new developments, such as blockchain, may fit into the framework and identify where changes may be required," said Medcraft

Medcraft’s speech followed shortly after the Australian Senate Economic References Committee asserted that digital currency transactions should be treated in the same manner as fiat transactions, when it came to Goods and Services Tax.

However, despite digital currency taking the regulatory hot seat in Australia, major banks appear to have a different stance. According to the Australian Financial Review, two of Australia’s Big Four banks, including Westpac and the Commonwealth Bank of Australia, are advising Bitcoin exchanges of upcoming account closures, .

Ron Tucker founder of Bitcoin exchange Bit Trader, and Chairman of the Australian Digital Currency Commerce Association, explained that the account closures were taking place without explanation or negotiation. “The industry is more than happy to talk to the banks about their concerns. However, neither the association nor its members have been given the opportunity.”

“Our members have been unable to obtain any formal clarification on the reasons for closure, except for references to policy or risk,” Tucker told the Austrlian Financial Review. “Just what policies or risks these are have not been specified.”

While many of those involved in the bitcoin industry thought the actions may be legally questionable, according to the Australian Competition and Consumer Commission, in most cases a business has the right to decide whether to supply a product or service. Refusing to supply is only breaking the law if they: are misusing their market power, involved in a boycott, imposing minimum resale prices on retailers, engaging in exclusive dealing or acting unconscionably.

Acting chief executive of the Australian Bankers’ Association, Tony Pearson, explained that banks are obliged to close accounts if they couldn’t see a full payments trail under AML/CTF laws. According to Pearson, the lack of transparency and regulatory oversight posed risks for both users and the payment system.

"Given the risks, there is a need for a clear and settled legal and regulatory framework for digital currencies"
— – Tony Pearson, Australian Bankers Association Acting CEO

Senator Sam Dastyari, who lead Australia’s first Digital Currency Inquiry, stated his concern "that there is an allegation that Australian banks are deliberately choking small businesses, while setting themselves up to offer the same services.”

“We don’t have a four-pillars policy to allow banks to guillotine emerging industries they are competing with.”
— – Senator Sam Dastyari

Buyabitcoin and Bit Trader are among 17 companies that have reported receiving the letters, which are in stark contrast to ASIC’s statement regarding regulation without inhibiting innovation. It also comes as quite a surprise, considering merely months ago Reinventure Capital Fund, of which Westpac is their largest client, announced their investment in American based Bitcoin exchange Coinbase.

“Westpac is the largest investor in the Reinventure Fund.  The fund is operated independently by the managers, Danny Gilligan and Simon Cant, who are also co-investors in the fund. This allows us to fully focus on helping our portfolio companies succeed and, with $50M in committed funds, we have the resources to continue investing and stay engaged with companies as they grow.”
— – Reinventure Fund

The bitcoin startup provides both a bitcoin wallet and a platform, where merchants and consumers can transact. “Reinventure co-invested alongside Union Square Ventures, Andreessen Horowitz, Ribbit Capital and DFJ Growth as well as the New York Stock Exchange and investing arms of leading bank innovators, BBVA and USAA,” Reinventure states on their portfolio.

“Once we invest, our job is to add value to our ventures in the best way we can, including bringing to bear our operational experience and networks and unlocking maximum synergy value between the ventures and our largest investor, Westpac. Westpac is keen to understand emerging trends, acquire know-how from great entrepreneurs and co-create in areas that can benefit from the complementary skill-sets both parties bring.”
— – Reinventure Fund

Coinbase stated on a blog post, “that one of Reinventure’s primary objectives is to create opportunities between its portfolio companies and Westpac, Reinventure’s largest investor and one of the top 15 largest banks in the world. We plan to work closely with Reinventure and share insights into the use of digital currencies globally.”

Currently Coinbase services 25 countries and is focused on adding new countries all the time. The company aims to be present in 30 countries by the end of the year. The company is yet to announce any expansion plans into Australia.

This is not the first time a financial institution has attempted to take regulation into their own hands. Barclays a major bank based out of the United Kingdom attempted a similar move, shutting customer accounts which were partaking in Bitcoin trades. However, in recent news from R3 CEV it appears the Barclays tune may have changed towards the technology, as they are joining forces with eight other banks on a blockchain research expedition.