Virtual asset designated services

Virtual asset designated services

The designated services only apply where the service is provided in the:

• course of carrying on a business participating in the sale or offer (generally) (item 50C)

• course of carrying on a business as a VASP (items 46A, 50A and 50B)

• capacity of an ordering institution or a beneficiary institution (items 29 and 30).

The difference between the terms ‘carrying on a business’ and ‘carrying on a business as a VASP' is:

• carrying on a business participating in the sale or offer (generally): the service at item 50C (financial services connected with the offer or sale of a virtual asset) will be captured if it’s provided by a business irrespective of whether it’s provided as a one-off service or it’s otherwise not a typical service provided by that business. In other words, the business doesn’t need to be a VASP to be captured by this designated service.

• carrying on a business as a VASP: the services at items 46A, 50A and 50B (exchange of virtual assets and virtual asset safekeeping services) will only be regulated where they’re provided by a business that’s a virtual asset service provider.

For example, the virtual asset safekeeping services at item 46A wouldn’t capture a circumstance where a lawyer who doesn’t carry on a business as a virtual asset service provider—for example, a criminal defence lawyer—stores a client’s virtual assets cold wallet in their safe.

The phrase ‘in the course of carrying on a business’ (generally) means that a service can be provided in the course of business even if the service is any of the following:

• not the only service provided by the business

• only provided once.

We consider that a service will be provided in the course of a business where it’s provided by a business for a fee or for free to otherwise further that business. This is important as the fact that a person is receiving a service for free, or at a reduced price, will not necessarily lower the ML/TF risk of providing the service.

A business is defined as a venture or concern in trade or commerce, whether or not conducted on a regular, repetitive or continuous basis.

The term ‘in trade or commerce’ includes commercial operations, such as providing services for a fee.

Virtual asset exchanges

You’re providing a designated service if you’re engaged in:

| Item of Table 1 | Designated service | Customer of the designated service | | 50A | exchanging, or making arrangements for the exchange of: (a) a virtual asset for money (whether Australian or not); or (b) money (whether Australian or not) for a virtual asset; for a person, in the course of carrying on a business as a virtual asset service provider | the person whose virtual asset or money is exchanged | | 50B | exchanging, or making arrangements for the exchange of, a virtual asset for another virtual asset (whether or not of the same or a different kind) in the course of carrying on a business as a virtual asset service provider | the person whose virtual asset is exchanged |

These designated services extend to:

• item 50A – the exchange of virtual assets for money (or vice versa), whether of Australian currency or otherwise

• item 50B – the exchange of virtual assets of the same type (for example, Bitcoin exchanged for Bitcoin) or of a different type (for example, Bitcoin exchanged for Ether).

These designated services introduce the concept of ‘making arrangements’ for the exchange of virtual assets. This means that a VASP won’t need to provide every element of the exchange of virtual asset to be captured by these designated services.

For example, ‘making arrangements’ may include operating a platform for peer-to-peer exchange of virtual assets where such services are provided by a virtual asset service provider.

Captured activities under these designated services may also include acting as a principal, a central counterparty for clearing or settling transactions, an executing facility, or another intermediary facilitating the transaction where such services are provided by a virtual asset service provider.

Virtual asset safekeeping services

You’re providing a designated service if you’re engaged in:

| Item of Table 1 | Designated service | Customer of the designated service | | 46A | providing a virtual asset safekeeping service, where the service is provided in the course of carrying on a business as a virtual asset service provider | the customer of the service |

Virtual asset safekeeping services include services in which virtual assets or private keys (information enabling control over virtual assets) are controlled or managed for or on behalf of any of the following:

• the customer

• another person nominated by the customer under an arrangement between either the service provider and the customer, or the service provider and another person with whom the customer has an arrangement. This is irrespective of whether there are other parties to any such arrangement.

This designated service will apply, for example, where a VASP does any of the following in the course of carrying on a business as a virtual asset service provider; they manage or control virtual assets or a private key that permits access to a virtual asset wallet or control of virtual assets of another person.

These activities are designated services even when done as part of a multi-signature or other multi-person arrangement that requires several digital signatures or the consent of multiple people to perform a transaction.

Controlling or managing a virtual asset includes having the ability to hold, trade, transfer or spend the virtual asset according to the owner or user’s instructions.

We consider this doesn’t capture the provision of ancillary infrastructure, such as operators offering cloud storage where such services are provided by an entity that isn’t carrying on a business as a virtual asset service provider.

The arrangements mentioned in this definition are intended to exclude a person who solely provides a software application (such as a developer of self-hosted wallet software) but doesn’t engage in safekeeping or administration of the virtual assets.

You’re providing a designated service if you’re engaged in:

| Item of Table 1 | Designated service | Customer of the designated service | | 50C | providing a designated service mentioned in another item of Table 1 of section 6 (financial services) in connection with the offer or sale of a virtual asset, where the service is provided in the course of carrying on a business participating in the offer or sale | the customer mentioned in the item |

This designated service captures financial services provided by a business in connection with the offer or sale of a virtual asset. It includes services ancillary to initial coin offerings and other situations in which an issuer offers or sells a virtual asset.

It can cover businesses accepting purchase orders and funds and buying virtual assets from an issuer to resell and distribute the funds or assets, in addition to underwriting, market making and placement agent activities.

The requirement for a business to ‘participate’ in the offer or sale is intended to exclude incidental financial services such as a bank simply processing payments for their customers to purchase virtual assets under an issuer’s offer or sale of a virtual asset if the bank isn't otherwise involved in the offer or sale.

The sole act of issuing a virtual asset entirely on its own wouldn’t be captured by this designated service. It would instead be captured under the designated services in items 29, 50A and 50B of table 1 if this activity involved any of the following:

• the transfer of the issued virtual assets on behalf of the customer

• the exchange of the issued virtual assets for money or another virtual asset.

• Check if you're regulated

• Designated services for newly regulated entities

• Combating money laundering, terrorism financing and proliferation financing

• Your obligations

• The travel rule .