AML/CTF Tranche 2: How to prepare your practice

Patrick McComish | Head of Anti-Money Laundering and Commercial Information Equifax

Regulatory background

It’s been more than ten years since the arrival of Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act 2006), which regulates how reporting entities manage the risks of money laundering and terrorism financing.

In Australia, AML/CTF compliance is currently limited to approximately 14,000 Reporting Entities.  But increasing pressure to align Australia with other Financial Action Task Force (FATF) jurisdictions means changes to the Act (Tranche 2) will broaden the scope of compliance, affecting lawyers, conveyancers, real estate agents, accountants and other professional services providers.

New Zealand has leapfrogged Australia, with lawyers having to comply from 1 July 2018, and accountants from 1 October 2018.

The estimated timeline for Australia on AML Tranche 2 is for draft legislation to be released by the end of 2018 and implemented mid-2019.

The lag in regulatory implementation

The delay in Australia’s implementation of Tranche 2 legislation may have ramifications for professional industries on a local and global scale, as Australia becomes an increasingly attractive market for money laundering and terrorism financing1.

Until the commencement of Tranche 2, financial institutions will begin to look into the Know Your Customer (KYC) policies exercised by their professional services clients to determine if the risk they represent is too great, potentially resulting in de-banking large accounting and/or legal clients to avoid risk contagion.

This could dramatically disrupt the business landscape for accountants and lawyers in Australia.

Embracing RegTech

The compliance vacuum caused by Australia’s lack of legislative reform has drawn technology to the market, providing increasingly efficient AML compliance solutions for these areas.

In stark contrast to our regulatory position, Australia has a vibrant regulatory technology (RegTech) market, on a world scale.

The upside is that Australia has a host of world-beating tech solutions, making AML compliance faster, easier, cheaper and more efficient.

Advances in data-driven services allow customers to identify beneficial owners with ease, use biometrics to verify identity, and access live updates on AML-specific data.

Combined, these technological advances offer a genuine reduction in risk, and unprecedented capacity for ongoing customer due diligence (OCDD).

Regardless of when Tranche 2 is implemented in Australia, professional services need to protect themselves from AML/CTF vulnerabilities and begin early preparation for what will be a major industry change.

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