Thursday, 22 June 2023

Updated AML/CTF legislation will help make Australia safer from financial crime, but a whole new approach is needed if Australia is to be effective in keeping ahead of the criminals.

It’s great that the Australian government is taking concrete steps towards modernising our anti-money laundering and counter-terrorism financing (AML/CTF) regulations. And that it’s consulting with industry on proposed changes to the legislation.

There’s no doubt modernisation and an expansion of those regulated is way overdue. For decades we’ve had only half a solution, with banks, casinos and financial services subject to the regulations. This means it has been – and still is – easier for criminals to get away with financial crime in Australia than other countries with stronger laws. Who can say how much crime we attract because other professions who can help hide illegal funds aren’t covered by AML regulations? Like lawyers, real estate agents, accountants and precious metals/stones dealers. Yes, it’s past time to bring them into the fold, as will happen when the Tranche 2 reforms come into force. 

It’s time now, though, to start talking about how that will work. There’s a lot of misunderstanding. Education will be necessary, and the Tranche 2 businesses will need time to prepare. 

A big shift will be needed in how the regulator, AUSTRAC , operates if these reforms are to succeed.

Right now, the regulator balances its roles of collecting and synthesising intelligence for our law enforcement agencies with overseeing and informing the approximately 14,000 businesses covered by the legislation on compliance well. Tranche 2 is likely to increase the size of that reporting entity population tenfold, so we must consider a new approach to how AUSTRAC is resourced and supported in its supervisory role.

The explosion in the number of regulated businesses will increase the demand for advice on these matters exponentially in a market that is already spread thinly.

AUSTRAC could take a networking and not just supervisory approach to bring even greater change. The regulator could work more closely with training providers, RegTechs and third party advisors to amplify its presence in the market. This would take new skills and a new mindset on the part of AUSTRAC, but it would have a huge, positive impact.

The current approach covers the regulator and the regulated, but typically not the many third parties who hold considerable influence, like professional service providers,  RegTechs, and consumer groups. These bodies offer additional expertise and resources for tasks that could be done outside of Government. For example, AUSTRAC could delegate monitoring for non-compliant businesses and free up scarce resources. It could work with certified training providers to speed up and improve financial crime expertise across industry. And certified RegTechs could help simplify compliance obligation solutions and give businesses greater confidence in investing in technology to help them meet their obligations.

We could see a faster, more effective, and less stressful implementation of not just an expanded regime, but a bold new solution. However, this can’t happen without greater flexibility in the existing legislation and AUSTRAC’s operating model. With that, the possibilities are endless. Without it, we run the risk of being hamstrung by law, resources and skills that are all too limited to meet the needs of the expanded regime. Because either way, this is more than just scaling up. 

We have seen this flexibility created within the Australian Taxation Office, where advisers are certified by the Tax Practitioners Board and software is certified so users know it is correct and up to date. If the ATO can do it for so many businesses, so can AUSTRAC.

By creating a networked model, AUSTRAC will be able to help businesses be more effective working together against a common enemy and enlist a bigger cohort of allies fighting financial crime.

And isn’t that the point of the exercise?

To read KordaMentha’s submission to the Attorney-General’s Department on the proposed changes click here.