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10 Expert Recommendations For NZ Crypto Regulation

This discussion is based on the recently published New Zealand Law Foundation report: Regulating Cryptocurrencies in New Zealand. The authors of the report include Associate Professor Alexandra Sims from the University of Auckland, Dr Kanchana Kariyawasam from Griffith University, and Professor David Mayes from the University of Auckland.

NZ Crypto Regulation

“This report does not argue that cryptocurrencies should replace current established payment systems, but rather that cryptocurrencies provide an alternative, and, at times, complementary payment system, which for the reasons the report sets out, could be highly advantageous to individuals, organisations and wider society.”

There is currently no internationally recognised standard for the regulation of cryptocurrencies. Instead, existing archaic laws are (in some countries) applied in an attempt to legally classify and regulate a technology which is far more advanced than these laws pertain to. In others, attempts to ban cryptocurrencies have been made. It is only in a minority of countries, like Malta and Japan, where regulation has been proactive, and practical guidelines issued.


The Current State of Crypto Regulation in NZ

New Zealand currently has no crypto-specific regulatory legislation. However, this does not imply that it isn't subject to regulation here. Instead, existing laws have been applied and, at the time of writing, Inland Revenue views crypto as property. In essence, profits are taxable, and losses can be claimed.

N.B. It is important to note that this article is not intended as financial or tax advice in any way, shape, or form. For more details on the taxing of crypto in New Zealand I recommend you seek the advice of a tax specialist.

With regards to AML/CFT regulations, all money changers fall under the supervision of the Department of Internal Affairs (DIA). This category of “money changers” includes those who deal with crypto, like us. Additionally, certain cryptocurrencies are classed as financial products and as such, fall under the Financial Markets Authority (FMA) regulation as well. This is why BitPrime is a Registered Financial Services Provider. Should you wish to read more about our AML/CFT-specific policy, please see this page.


Recommendation 1: The New Zealand Government should continue to allow cryptocurrencies to be traded as well as used for the payment of goods and services within and outside New Zealand.

The authors of the report point out that any attempt to ban cryptocurrency use in New Zealand is unlikely to work. Also, it would put local businesses at a disadvantage to those businesses in more “progressive and fintech-friendly countries”.

As we have mentioned in another article, New Zealand used to pave the way when it came to financial innovation. We piloted one of the world’s first EFTPOS systems back in the mid-‘80’s!

What’s more, the West Coast is fast becoming the blockchain hub of New Zealand. Banning cryptocurrencies would severely stunt the economic growth planned for this community. And it wouldn’t only be the Coast that’s affected. Startups would no longer have access to the substantial funding available to them through the NEM Foundation's community fund.


Recommendation 2: New Zealand-based cryptocurrency exchanges should be encouraged, and clear guidance provided as to their Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT) obligations by both the Department of Internal Affairs (DIA) and the Financial Markets Authority (FMA). That is, follow Australia’s example.

“It is generally safer for individuals and businesses to deal with cryptocurrency exchanges based in New Zealand than ones based overseas.”

It is pointed out in the report that New Zealand regulators don’t even need to amend current laws for crypto exchanges. They need to provide clear, detailed guidance on how those laws specifically apply.

In saying that, the Australian Government did amend its AML/CFT Act in April 2018 to include requirements for cryptocurrency exchanges and redefine “digital currency”.

As stated in the “Current State of Crypto Regulation in NZ” section above, BitPrime is a Registered Financial Services Provider. As such, we take our legal and regulatory obligations seriously. One reason for this is to help establish a good relationship between both regulators, and the customers we serve. Our compliance programme was prepared by AML Solutions, New Zealand’s leading AML/CFT compliance specialists.


Recommendation 3: Greater advice and therefore protection should be provided to consumers on cryptocurrencies by the FMA, DIA and other organisations.

The authors of the report found that there is no information from the DIA for consumers and businesses in New Zealand who wish to buy or use crypto. On the other hand, the FMA does provide some useful advice. Should you want to read this, you can find compliance advice here, and investors advice here.

Another organisation that needs to provide more detailed guidance for businesses and consumers is Inland Revenue. They have issued some initial guidance which we will cover in the relevant section below.


Recommendation 4: Cryptocurrency exchanges that comply with AML/CFT and other requirements must have access to bank accounts with New Zealand banks.

Yes! An absolute must! For those of you who have been with BitPrime for a while, you’re probably familiar with this issue for us! We have previously had accounts closed despite our strict adherence to current AML/CFT guidelines.

Clearly, this impacts us from a business point of view. But, it also affects you, our customers too. From minor annoyances such as influencing our order processing times and transaction limits, to forcing some to buy from overseas exchanges. Which, as mentioned earlier, can be far less safe as many are subject to zero rules and regulations.

As suggested, amend the Banking Code of Practice so banks must show good reason for closing cryptocurrency exchange bank accounts. Similarly, they shouldn’t be allowed to refuse the opening of accounts for compliant businesses for these reasons too. Presently, the banks can, and do, close business accounts due to crypto-related activity, and refuse to open accounts also.

“If cryptocurrency exchanges are simply dealing with people with New Zealand bank accounts, and customers are making and receiving payments from New Zealand bank accounts, there is no justification for removing an exchange’s own transactional bank accounts. The only justification would be if [the] exchanges’ conduct was shown to be a potential breach of the AML/CFT requirements, for example, if the exchange was purchasing cryptocurrencies from sources which could be engaged in money laundering or terrorism financing. Thus, if an exchange is purchasing from exchanges overseas, such as Coinbase, which have rigorous identity verifications processes it would be difficult to find concerns in relationship to New Zealand AML/CFT requirements.”


Recommendation 5: Merchants must be able to accept cryptocurrency payments by people or organisations for under NZD100 or payments made through a New Zealand exchange (or an overseas exchange) that complies with AML/CFT requirements, without the merchants losing their bank accounts.

“The banks have made it clear to a number of merchants that if they wish to accept cryptocurrencies from their customers they will lose their bank accounts. Granted, the concerns are based on AML/CFT fears, yet the same banks allow those merchants to accept cash from their customers.”

The report suggests that payments made through AML/CFT-compliant exchanges to New Zealand merchants should satisfy the bank's money-laundering concerns. The exchanges themselves will have already made sure that their customer’s identity has been verified.

Of course, there are even better solutions in development. A lot of focus on blockchain technology is on creating digital identities. Allowing for the signing of transactions while eliminating the possibility of fraud. Examples of projects working on this include uPort.


Recommendation 6. GST is removed from cryptocurrencies that are used for the payment of goods and services.

Clearly defining what exactly goods and services are concerning cryptocurrencies would be a brilliant first step. Also, the characteristics and purpose of the token play an essential part in this too. To illustrate this, utility tokens exist to utilise (as the name suggests) the services a platform offers, e.g. data storage. Regarding GST, paying tax when buying cryptocurrencies and again when using them to purchase goods and services is double taxation. And no one wants that! If crypto is treated as currency for GST purposes, this double taxation issue will be solved.


Recommendation 7: The Inland Revenue Department (IRD) clarifies other taxation rules around the use of cryptocurrencies.

Australia was quick to realise the potential of cryptocurrencies and blockchain technology. In October 2014, the Senate Economic References Committee first looked into crypto. By August 2015, they had published a report of their inquiry into the opportunities and risks, and potential tax and regulatory frameworks. This wasn’t done to clamp down on crypto and shut it out. Instead, it was done with the aim of “support[ing] innovation and the needs of the growing Australian digital currency industry”.

Additionally, the Australian Tax Office released rulings regarding crypto and Capital Gains Tax, GST, Income Tax, and Fringe Benefits Tax. The authors of the report point out that these original rulings were far from perfect, particularly concerning GST. Thankfully, the Australian Parliament revised the decisions in July 2017. The Australian Government is clearly open to change and to amend rulings as necessary to promote innovation and technology.


Recommendation 8: The IRD should accept cryptocurrencies for the payment of taxes.

It is suggested that New Zealand’s image as a progressive country will be enhanced by accepting tax payment in cryptocurrencies. Additionally, it will further drive economic activity in New Zealand as opposed to pushing it offshore. Individuals, businesses, and Inland Revenue alike, would need crypto exchanges. Therefore, it makes sense to use local ones to boost our economy.


Recommendation 9: The Reserve Bank of New Zealand (RBNZ) should trial the creation and issuance of a New Zealand Central Bank-issued Digital Currency (CBDC).

The majority of transactions in New Zealand are already digital; think EFTPOS, and credit cards. If the RBNZ issued a CBDC, uptake would likely be popular and just as easy for consumers as present-day options.

Distributed Ledger Technology (DLT) offers significant benefits over existing technology. This includes immutability, and programmability that many sectors, primarily financial, can utilise to enhance efficiency.


Recommendation 10. Although this point goes wider than merely cryptocurrencies. New Zealand should follow countries such as the United Kingdom (UK) and Australia and create a regulatory sandbox and ensure that the regulators work alongside fintech companies.

New Zealand needs to ensure that it is not left behind other countries. As Kiwibank’s Digital Advisor, Peter Fletcher-Dobson, has been reported as saying, “New Zealand needs to get a move on, otherwise we’ll miss out on the massive opportunity presented by cryptocurrencies” and “regulatory sandboxes should potentially be created”.

It is my hope that New Zealander's receive the regulatory guidance we need sooner rather than later. It would be great to see our country join the likes of Malta, Japan, and Australia to help develop legislation. This is most certainly a space to watch closely for development!

For more on guidance provided by the FMA for cryptocurrencies see this article:  Rehashed #21 A Crypto Guidance Update from the Financial Markets Authority

Disclaimer: The above references an opinion and is for informational purposes only. Do not take this as personalised financial or investment advice. The opinions expressed by the author do not represent the opinion of BitPrime.

Images courtesy of Shutterstock unless stated otherwise.

Last updated: 03/10/2018

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