Following moves by China and Japan to regulate digital currencies, Australia is attempting to crackdown on money laundering and terrorism financing with plans to regulate bitcoin exchanges.
"The threat of serious financial crime is constantly evolving, as new technologies emerge and criminals seek to nefariously exploit them. These measures ensure there is nowhere for criminals to hide," said Australia's Minister for Justice Michael Keenan in a press release.
The Australian government proposed a set of reforms on Thursday which will close a gap in regulation and bring digital currency exchange providers under the remit of the Australian Transactions and Reporting Analysis Centre (AUSTRAC).
These exchanges serve as marketplaces where traders can buy and sell digital currencies, such as bitcoin, using fiat currencies, such as the dollar.
Bitcoin (Exchange: BTC=-USS) has grown massively this year. The market cap has increased to $73.93 billion and the price recently hit fresh record highs. It currently trades at $4,476 and the price has risen 348 percent year to date.
The reform bill is intended to strengthen the Anti-Money Laundering and Counter-Terrorism Financing Act and increase the powers of AUSTRAC.
This will be the first time Australia's crypto currency exchange sector will be regulated, according to the minister. The move is like to frustrate users among the crypto currency community who wish to use it anonymously or dislike attempts by governments to regulate and control digital currencies.
"Stopping the movement of money to criminals and terrorists is a vital part of our national security defences and we expect regulated businesses in Australia to comply with our comprehensive regime," he said.
The move has been welcomed by Aurélien Menant, founder and CEO of Gatecoin, a digital currency exchange based in Hong Kong, calling it a "very positive" development.
"It signifies the growing recognition of bitcoin and other cryptocurrencies as influential value transfer protocols by governments. Compliance with AUSTRAC policies will weed out the crooks and ensure that only serious bitcoin businesses are able to serve the market," he told CNBC via email.
Menant said this will help Australia's cryptocurrency economy to mature and encourage wider adoption of digital currencies.
The decision by Australia follows similar moves in China and Japan.
In January and February, the People's Bank of China made announcements it was investigating bitcoin and met with several exchanges to warn them they would be closed if they violated anti-money laundering regulations , which prompted these exchanges to improve their systems. The central bank and China's government have so far held off from releasing explicit regulations for the sector.
In contrast, Japan issued a new law accepting bitcoin as a legal currency earlier this year. This move led to a surge of demand for the crypto currency by investors and several major retailers now accept bitcoin as payment. The move also required exchanges in the country to comply with regulatory requirements.
"So far in both Japan and China, the 'Know Your Customer' and anti-money laundering processes of exchanges have become stricter, but this has not deterred trading activity as Japan and China remain the largest markets for cryptocurrency trading globally," said Menant.
One challenge for Australia will be trying to regulate exchanges based outside of the country but serve Australian clients, as some of these may not use any 'Know Your Customer' or anti-money laundering processes, Menant warned.
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