Regulatory gap in crypto causing financial system conflict – Senate inquiry and tribunal hear from the “crypto de-banked”
A lack of regulation is causing banks to shut out many FinTech businesses from the mainstream financial system.
That is what an ever-expanding army of the “crypto de-banked” have told a Senate inquiry and a human rights tribunal in recent months.
Later in October 2021, the ACT Civil and Administrative Tribunal will hear a case brought by Allan Flynn against ANZ and Westpac, who he says breached his human rights and the Discrimination Act 1991 (ACT) by closing his bank accounts due to being a cryptocurrency dealer.
Mr Flynn first made his complaint to the ACT Human Rights Commission, which referred it to the Tribunal.
The banks claim in their defence that Mr Flynn’s business went beyond their risk appetite, due to a lack of regulation and concerns around anti-money laundering and counter-terrorism financing compliance including the requirement to “know your customer”, given the inherent anonymity of most cryptocurrency platforms.
This issue highlights the tension between the mainstream financial system and the, to date, unregulated cryptocurrency world. While cryptocurrency emerged as a form of ‘counter-currency’ deliberately outside mainstream finance, it is becoming increasingly ‘mainstream’ due to the increasing number of currencies and their broad uptake. Fintech’s are looking to leverage cryptocurrencies’ popularity, and its segregation from the mainstream payments systems largely dominated by traditional banking, as a means of further disruption of traditional financial services.
But as the crypto and mainstream finance spheres are increasingly intersecting, conflict is arising in that intersection. A prime example is anti-money laundering and counter-terrorism financing regulation. Cryptocurrency by its inherent nature lacks many of the very characteristics that the AML CTF regime mandates – transparency about the source and use of funds. This is creating conflict in interactions between crypto consumers and traditional banking.
Before his case before the ACT Civil and Administrative Tribunal, Mr Flynn, among dozens of others, had earlier complained to an ongoing Senate inquiry.
The Senate’s “Select Committee on Australia as a Technology and Financial Centre” has been tasked with, among other things, examining the opportunities and risks in the digital asset and cryptocurrency sector. The inquiry received over 80 submissions from small business owners, big banks, industry associations and government bodies. It also held public hearings in August and September 2021.
One notable submission to the Senate inquiry was from Michaela Juric, the operator of Bitcoin vendor “Bitcoin Babe”. Ms Juric claims she has been de-banked 91 times including by the “big 4” banks, put on a terrorism watchlist and bullied by AUSTRAC, despite contributing to the design and development of regulatory guidance for AUSTRAC, as well as the ATO and the Treasury.
The Senate inquiry has released two interim reports, with its third and final report due by 30 October 2021 expected to consider the issue of de-banking of the FinTech sector, including the role played by regulators.
The inquiry, and consumer side action, is occurring alongside a major focus internationally on how to regulate cryptocurrency.
In the coming weeks, we expect to see some real steps taken towards recognition of the issues faced by the “crypto de-banked”, and the causes and significance of the practice, while at the same time broader issues of future regulation play out.
Anthony Jensen & Dan Mackay
