Australia is home to over 600 fintechs, thousands of banks and financial services, making it one of the largest developed economies in the world. Such financial institutions must navigate cautiously through the legal framework put forth by the Australian financial system to protect them against anti-money laundering threats (AML) and combating the financing of terrorism (CFT). Owing to the recent Westpac and Commonwealth Bank scandals, Australia recently made reforms in the AML/CFT rules, which came into force in June 2021. Fintechs must keep AML/CFT compliance as their high priority. To ensure that, they need to take note of the following compliance considerations in their aml program.
AUSTRAC
Australia’s government has appointed the Australian Transaction Reports and Analysis Centre (AUSTRAC) to serve as its chief financial intelligence regulator and an agency tasked with preventing financial crimes, terrorism financing and preventing money laundering. They also ensure that the banks, fintechs and other financial institutions comply with the AML regulations and the ones put forth by the Financial Action Task Force (FATF), failing which they must pay heavy fines.
Australia’s AML/CFT Legislation
The primary legislation in Australia addressing financial exploitation and money laundering is the Anti-Money Laundering and Counter-Terrorism Financing Act implemented in 2006. It includes a list of services such as currency exchange, payroll, deposit-taking etc. Fintechs must register with AUSTRAC and comply with the regulations. They are obligated to report any suspicious activities or Threshold transactions. Fintechs must also comply with the regulations on licensing and reporting under the existing AML/CFT framework.
About Reforms in the AML/CFT Rules
The Government of Australia passed the new reform for the AML/CFT legislation in December 2020 through the Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2020 (the Amendment). After many months of deliberation, the Australian House of Representatives brought the reform up for vote upon reviewing the country’s primary legislation on AML/CFT drafted in 2014. The reforms came into force on June 18, 2021, under the name Tranche 1.5. The reforms focus on an aml program, touching on cross-border payment reporting, information sharing, correspondent banking and customer due diligence.
New Changes in AML Program Rules
- AUSTRAC, through the Tranche 1.5 reform, imposes the rule that fintechs and financial institutions must conduct proper customer due diligence before providing the designated service.
- In specific circumstances, the financial institutions can rely on the abilities of third-party diligence to help them with the regulations imposed by AUSTRAC.
- The new law bans financial institutions from entering into relationships with institutions that allow shell banks to use their bank accounts.
- It has also strengthened the due diligence requirements that the institutions must comply with before entering into correspondent financial relationships.
- The new law has streamlined cross-border reporting with clear and expanded instructions on how domestic and foreign entities must report all their monetary instruments and financial relations through AML programs.
- AUSTRAC has now made it easier to inform third-party entities about the existence of suspicious AML/CFT behaviour by introducing new exceptions.
Reports of Upcoming Reforms
Many view the Tranche 1.5 reform as an incremental change to the AML/CFT compliance regulations. There are reports of an additional reform known as Tranche 2 on the horizon, although it has not yet been announced by the government. These reforms aim at bringing high-risk professions like accountants, real estate agents, lawyers etc., under the AML/CFT laws as proposed in 2006 during the passing of the AML/CFT legislation. It is in hopes of stopping individuals and institutions from laundering and exploiting money through the property markets in Australia as it is currently in oversight.
