Claire Wivell Plater

Bitcoin businesses should actively seek advice on whether their businesses are compliant, as there may be difficulty in applying existing Australian Financial Services (AFS) licensing laws, according to Claire Wivell Plater, Managing Director of the Fold Legal and Amor Sexton, Digital Currency Lawyer atAmor Sexton.

AFS regulatory expert, Ms Wivell Plater says bitcoin isn’t easily characterised. While some regard it as money others call it a digital currency. A third view is that it’s a commodity.

“There could be other views,” she says. “What we do know is that it’s one of the fastest-growing technologies since the birth of the Internet, primarily because it offers a low-fee payment gateway that can bypass foreign currency remitters and banks.”

Ms Wivell Plater says it seems unlikely that bitcoin itself is a financial product under the AFS laws as they currently stand.

“Therefore, some businesses, like bitcoin exchanges or ATMs, may not need an AFS licence,” she says. “However, some services associated with bitcoins may well be financial products. For example, a facility by which people can use bitcoin to pay for goods and services may be what’s known as a non-cash payment system for which an AFS licence would be required. Similarly, bitcoin futures or other derivatives based on bitcoin would clearly be a financial product.”

The need for a licence will depend on the business model, Ms Wivell Plater warns. “Even small variations may be important. Bitcoin businesses should take advice at an early stage to ensure that they are aware of their legal obligations. Operating without an AFSL can attract serious penalties, not the least of which could be the need to suspend trading until the AFSL is granted.”

Ms Sexton, who is an adviser to a number of bitcoin businesses, warns against taking a ‘one-size fits all’ approach. “For most regulatory requirements, the focus is on what the business is actually doing with bitcoins,” she says. “It is important to get advice that is specific to your business model and processes.”

Bitcoin businesses need to be aware of possible obligations under the Corporations Act, the Competition and Consumer Act, the Privacy Act, the Payment Systems (Regulation) Act, the Anti-Money Laundering and Counter-Terrorism Financing Act, the Financial Transactions Reports Act, the Banking Act, the various State consumer protection legislation, the GST Act and other tax laws.

Ms Sexton believes the novelty of bitcoin means that the application of these laws to bitcoin businesses can be complex and difficult to determine.  However she believes that it is only a matter of time before this changes.

“It will be interesting to see how the law develops as the adoption of bitcoin increases. At the moment bitcoin is a new concept and it is easier for the regulators to try to fit bitcoin within the existing legal framework,” she says. “When bitcoin use becomes more mainstream, it will challenge the government to tailor the legal framework for digital currencies.”

Ms Sexton also highlights the potential impact that developments overseas can have on the Australian legal status of bitcoin. “If an overseas country decides to declare bitcoin as legal tender, this would mean that it would be considered ‘foreign currency’ under Australian law.  This would have a massive impact on the way that the regulators approach bitcoin.”

According to Ms Sexton, this possibility is not too far-fetched. “A country can adopt whatever currency they want as legal tender. For example, in Zimbabwe both US dollars and South African rand are legal tender. The central bank in Zimbabwe has also begun to allow the use of Australian dollars, Chinese yuan, Indian rupees and Japanese yen. It is possible that another government may see value in allowing a digital currency to be another form of legal tender.”

Until a change like this happens, bitcoin businesses will need to consider how their activities fit within the traditional legal framework, she says.

Although compliance can be time consuming, both Ms Sexton and Ms Wivell Plater see commercial benefits for a bitcoin business. “The rules are based around best practice. If the public sees that bitcoin businesses are complying with the rules, their confidence in using bitcoins will increase.  This will have a positive commercial effect on the businesses and the industry as a whole,” Ms Wivell Plater says.

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