Mastercard is allowing merchants to accept direct crypto payments, exchange traded funds focusing on digital currency are popping up, and Square and Tesla hold Bitcoin investments—but will Australian banks ever come to the crypto party?
They don’t appear to be too keen, despite cryptocurrency’s increasing acceptance in everyday trade and commerce around the world.
Are any Australian banks embracing crypto?
The short answer is not really! We spoke to Gen Advisory Managing Director Michael Lukman, who has 20 years of experience in the banking regulation and advisory space. He says “based on the anecdotal reports we’ve received to date, Australian banks (particularly the majors) are still yet to embrace digital currencies.”
Mr Lukman considers that this is contrary to global trends, where international investment banking giant JPMorgan Chase is openly banking major cryptocurrency players, and crypto trading platform Coinbase is about to list as a public company on the New York Stock Exchange.
Why Australian banks are struggling with crypto
According to Mr Lukman, this reluctance comes down to a lack of understanding by banks and the wider public.
“There is still a degree of distrust and scepticism towards digital currencies as a whole,” he says. “There is also fear of the social harm that could arise from digital currencies.”
In particular, he highlights concerns that cryptocurrencies can be used to fund or otherwise support illegal activities and financial crime.
This is particularly the case given the lack of regulatory certainty surrounding digital currencies, and the related failure of several recent high-profile crypto exchanges.
What are the potential risks that banks face?
The greatest threat involving digital currencies is their potential to enable illegal activities. There is a significant risk of cryptocurrencies being affected by cyber-crimes such as hacking to devalue wallets, or otherwise intercepting payments.
There’s also the risk that the Australian Transaction Reports and Analysis Centre (AUSTRAC) could find that banks dealing in cryptocurrency have inadequate anti-money laundering and counter-terrorism financing controls. This could mean they are subjected to penalties and sanctions, Mr Lukman says.
Of course, Mr Lukman points out that there are ways to lower these risks.
“Such risks are easily mitigated through blockchain transaction monitoring tools like those offered by Merkle Science, Chainalysis and other providers,” he says.
“These solutions are often more effective than normal fiat transaction monitoring due to the value of the blockchain.”
What needs to change before crypto is viable for banks?
In addition to blockchain-based transaction monitoring, Mr Lukman suggests there needs to be greater certainty regarding the regulatory status of digital currencies.
He says more education and training would be beneficial in encouraging Australian banks to embrace crypto. This could include the issue of guidance notes and other materials by AUSTRAC in relation to their expectations for digital currency exchanges and the banks that transact in them.
What might lending look like if banks embrace crypto?
If banks were to welcome cryptocurrencies, Australians could, for example, find themselves using crypto to pay the mortgage.
“If banks became open to the concept of cryptocurrencies, they could adopt things like Decentralised Finance (DeFi) and help build out this ecosystem with capital and structure, create insurance products etc,” he says.
“Collateral could be given in the form of crypto for fiat loans, homes could be bought with BTC, and mortgages given out in crypto.”
Ultimately, Mr Lukman sees a brand new world for the average Australian in five or 10 years’ time—if only banks are prepared to embrace cryptocurrencies as the way of the future!