Australia’s cryptocurrency industry has called for government intervention after banks have continued to refuse to provide services to the sector.
In a series of submissions to a Senate inquiry over Australia’s future as a technological and financial hub, cryptocurrency exchanges have unanimously called for a regulatory regime that will instead bolster the nation’s rapidly evolving digital asset industry.
“It remains the fact that the intersection of this cryptocurrency ecosystem with the traditional financial system is fragile and in urgent need of remediation,” stated a submission (pdf) by Swyftx.
Swyftx—one of the country’s largest exchanges with trading volumes of around $3 billion (US$2.2 billion) a month—said that financial institutions’ decision to engage in blanket “de-banking” of the sector had served to stifle growth, and accused the financial institutions of anti-competitive behaviour.
“The unwillingness of traditional banks to facilitate digital asset businesses by refusing to do business with them has introduced an unnecessary and significant risk to both the growth and innovation of the digital asset businesses,” the submission stated.
Swyftx reported a loss in customer trust after fund transfers were delayed or halted altogether, adding that the business model of exchanging fiat currency to and from cryptocurrency was being propped up by an unsustainably small number of financial institutions.
A joint submission (pdf) by the Department of Home Affairs and the Australian Transaction Reports and Analysis Centre (AUSTRAC) outlined that banks’ hesitancy in dealing with the industry was based on concern that the cryptocurrency transactions were associated with illicit activities.
In particular, they were concerned that the anonymous transactions could pose a greater risk of violating the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act).
The legislation has already seen AUSTRAC fine Australian banks billions of dollars over breaches of the AML/CTF Act, including a $700 million fine in 2018 to the Commonwealth Bank, and a $1.3 billion fine to Westpac in 2020.
Rob Nicholls, associate professor of regulation and governance at the University of New South Wales, said that financial institutions had an incentive to quell any further risk of being involved in illicit transactions.
“What you’ve got is a whole bunch of banks that have been pinged millions of dollars from AUSTRAC, and in that context, the easiest way to de-risk is to de-bank,” Nicholls told The Epoch Times.
Nicholls said the institutions may have wanted to bank the cryptocurrency brokers, but that the apparent inability to detect fraudulent activity in their own systems had prompted a total internal overhaul and de-risking which saw cryptocurrency caught in the crossfire.
He suggested that one solution that could foster trust between financial institutions and the digital asset industry would be to grant cryptocurrency brokers special licences authorised by the Australian Prudential Regulatory Authority (APRA).
While digital asset exchanges are currently required to register with AUSTRAC, any violations of the AML/CTF Act would still hold banks accountable. Nicholls said that the new system would instead solely hold the exchanges liable, giving comfort to the authorised deposit-taking institutions.
But the digital asset industry has refuted the idea that cryptocurrencies posed a higher risk. Blockchain Australia, Australia’s peak cryptocurrency body, stated in its submission (pdf) that the suggestion that activity related to the digital currency was nefarious was a “myth.”
However, cryptocurrency transactions, while available to view openly on a public ledger, are inherently anonymous and notoriously difficult to trace.
Cryptocurrency’s Illicit Market Share
Blockchain’s claims are theoretically supported by Chainalysis’ 2021 Crypto Crime Report (pdf) which states that in 2020, only 0.34 percent—or $13.7 billion (US$10.0 billion)—worth of cryptocurrency transactions globally were associated with illicit activity.
It is a point that Chainalysis admits is inaccurate, though. They state that the amount of illegal transactions discovered is set to grow, citing a previous difference between results from its 2020 and 2021 reports that were off by close to a factor of two.
That is, in 2020, Chainalysis predicted that illicit transactions for the year 2019 were 1.1 percent of all transactions, or around $15.3 billion (US$11.2 billion). In 2021, this figure grew to 2.1 percent, or roughly $29.2 billion (US$21.4 billion).
“The reason for the change is the identification of more addresses associated with illicit activity that was active in 2019,” the report stated.
Cryptocurrency’s real illicit market share is unknown, with contrasting peer-reviewed research titled “Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies?” estimating that per year, 46 percent, or $76 billion, of bitcoin transactions alone were involved in illegal activity.