In a modern – and increasingly technological world, all businesses are vulnerable to cyber-security threats.
Cryptocurrency is no exception to this.
Although most of the focus on the risks of cryptocurrencies emphasises potential nefarious uses, even the legitimate uses of crypto carry hefty security dangers.
In order to counteract these risks, ASX (the Australia Securities Exchange – which operates Australia’s stock market), are advocating for a more regulated crypto environment.
In a submission to Australia’s Senate Select Committee on Financial Regulatory Technology, ASX highlighted crypto – specifically, the custody of cryptocurrencies on centralised exchanges, as a significant cybersecurity risk for investors.
“On major blockchain platforms such as Bitcoin and Ethereum, digital assets are associated with a user through an address. Whoever can access the address is effectively the custodian of the digital assets in that address,” they explained.
As many users leave their digital assets on crypto exchanges – and the exchange holds private keys, such investors are left susceptible to theft by hackers.
Their submission additionally acknowledged that investors who choose to hold crypto exchanges risk their funds being improperly processed, disclosed, or unauthorised.
Given the frequency of such attacks in the crypto space – with over $53 billion of digital currencies stolen from the platforms between 2011-2020, these concerns must be taken seriously. A number of recent high-profile crypto heists have further demonstrated that even the most reputed crypto exchanges are not secure from breaches.
ASX believes that a more regulated environment can counter some of these risks. As a result, digital currency exchange service providers must apply the same obligations as other financial sector businesses, and are required to identify, manage, and mitigate risks of money laundering, terrorism financing, and other serious crime. – a notion that AUSTRAC – Australia’s agency set up to fight criminal abuse of the financial system, agrees with.
In response, the ASX recommended introducing regulations for centralised exchanges in the form of greater disclosure, requirements for core standards, and assurances that digital asset custodians are independent.
Indeed, given the absence of clear-cut crypto regulations in Australia, the mandate for such regulations – and a broader cryptocurrency regulatory framework, is clear.
At present, Australia’s senate is currently looking into current rules around both crypto and fintech – with the intention of modernising the nation’s regulatory approach to new cryptocurrencies and ensure ongoing competitiveness in the face of changing technological and economic circumstances.
We Can Help
While the conversation continues, we’re available to help crypto exchanges establish their own AML framework. Get in touch with our team of specialists today for professional advice and guidance.