IOTA is undertaking Australia’s AML reform
Australia’s proposed money laundering and counter-terrorism funding reforms aim to update the outdated rules of the digital age. The IOTA Foundation supports this direction and advocates a flexible, risk-based approach to compliance that enhances innovation while supporting safeguards. Key recommendations include smarter customer due diligence for low-risk transactions, perception of structural diversity across the business, and support for distributed models such as DAOS.
At Iota Foundation, we believe that innovation and compliance are closely linked. Money Laundering Regulations such as anti-money laundering (AML) and counter-terrorism financing (CTF) measurements play an important role in protecting the financial system and the entire society. They are powerful tools to protect trust, not bureaucratic checkboxes.
Therefore, we are closely looking at the proposed updates to the AML/CTF Act by Australia’s AML/CTF regulatory authority and financial information unit Austrac. These reforms are important. Rightly, they modernize Australia’s regulatory framework and align it with global best practices, allowing honest-working innovators to make life easier.
We have already submitted our thoughts to Austrac and now share some important points with the wider community.
Rethinking the Risk: A Smarter Way to Do CDD
Customer Due Diligence (CDD) is undoubtedly important. But do you treat all your transactions the same, no matter how small? It creates friction. Micropayments and low value transfers should not be oppressed by a full-fledged CDD unless they pose a real threat.
What is the alternative? A risk-based approach. It simplifies or delays verification when it makes sense. For example: use blockchain analysis, transaction monitoring, or decentralized identity tools to not only adapt but keep things comprehensive.
And what about time-sensitive transactions like non-obligatory wallets and transfers? Strict KYC rules can do more harm than good. Flexibility is important here. Delayed CDDs with proper post-transaction monitoring are a smart solution.
One size does not fit all
All businesses are different. However, in current drafts, small virtual asset service providers make sense for the global giant, but could face requirements that are not only traders or startups.
I recommend you make sure your draft rules recognize the need for flexibility, but there’s more to do. More specifically, the requirement to specify a dedicated AML/CTF compliance officer can place an undue burden on small entities. Options like Self-certification or Third Party Audit It can ease the load without compromising compliance.
The Real World of Daos, Wallets, and Web3: Adapting Compliance to Reality
The cryptographic ecosystem is more than just an exchange. There are DAOS, non-lawyer wallets, and new ownership models. Modern compliance frameworks should reflect this.
DAOS challenges the concept of intensive accountability. That doesn’t mean they can’t comply, but it means that there is a need for a flexible governance model that reflects how it works.
Non-resistant wallets are difficult because they don’t have clear ownership. However, we know that blockchain analysis and tokenized knowledge customer proofing can help identify counterparties, especially when self-hosted wallets are involved. To support this, IOTA’s Web3 Identification Solution, Tested in EU Blockchain Sandboxenhancing identity verification that provides decentralized privacy to users while meeting evolving regulatory standards.
Effective reporting for builders
Annual reports are one thing. Requiring everyone to fit a single financial calendar is another thing.
The proposed 12-month reporting cycle could create friction for global teams working in different fiscal years. Allowing VASPs to synchronize compliance reports with household jurisdictions will reduce data accuracy and improve data accuracy, especially for small teams with limited compliance resources.
And what about travel rules? Interoperability is important. If all countries implement thresholds, data sharing practices, and technical protocols differently, cross-border compliance becomes a minefield. Austrac must promote and encourage harmonized global standards Interoperable solutions To facilitate international transactions.
Shared services, smarter compliance
For many companies, centralizing compliance tasks across the group makes sense. Shared Service Hubs or centralized teams can increase efficiency and make AML/CTF obligations more consistent, especially in areas such as client onboarding, KYC verification, and transaction monitoring.
Allowing these types of internal structures will benefit everyone. Regulators are included.
Conclusion
Measurements of AML and CTF are essential. Protect the economy, prevent abuse, and maintain confidence in the financial system. But how they are implemented is a problem, and details can create and destroy innovation.
