Experts Share How to Prepare for AML/CTF Reforms and Tranche 2

Moderated by Drew Beresford, Head of Solutions at Equifax, the panel featured:

Ben Kennedy, Co-founder and COO, Maple Finance
Nick Boudrie, Co-founder and CEO, LAB Group
Jeremy Moller, Senior Advisor - Risk Advisory, Norton Rose Fulbright

Here’s a summary of the key takeaways.

Shifting from a tick-box to a risk-based approach

The most significant change under these amendments is the fundamental shift away from prescriptive rules to a more dynamic, risk-based approach. As the panelists highlighted, it’s no longer about simply collecting a set of documents. Instead, the focus is on assessing each customer’s risk profile and then applying the appropriate due diligence to identify, manage and mitigate money laundering, proliferation financing and terrorism financing risks.

The AML/CTF reforms will reshape the landscape for both financial and non-financial sectors in Australia. This includes new requirements for enhanced due diligence, rigorous customer verification and advanced technology to detect and prevent financial crime. To comply, institutions must bolster their AML risk management strategies to effectively identify and mitigate potential threats.

The reforms also include the extension of the AML/CTF regime to cover additional so-called Tranche 2 entities including real estate, legal and accounting professionals, as well as dealers in precious stones and metals. This expansion will cause the number of reporting entities to swell to around 90,000. 

A key point raised was that Australia’s sanctions regime has no de minimis ownership threshold, unlike the US Office of Foreign Assets Control (OFAC) 50% rule. This US rule imposes sanctions on companies where sanctioned entities own 50% or more of the organisation. The absence of a clear percentage-based rule in Australia means that any level of ownership or control by a sanctioned person can be considered a potential trigger for sanctions, creating greater uncertainty and risk for businesses.

To manage this, a proactive approach is essential: map new requirements to your existing processes and then rewrite your AML/CTF program, rather than starting with a generic program and trying to fit your business into it.

The challenge of scale and resourcing

Tranche 2 will be a major shift in scale. The panelists estimated roughly a seven-fold increase in Politically Exposed Persons (PEPs). This presents unique challenges for business processes like property transactions, where lawyers, conveyancers, accountants, real estate agents and banks all need to conduct due diligence. Businesses must consider key questions around alignment and reliance, such as how to reduce duplication of effort and manage this as a cohesive process?

This increase in scale will also lead to an immense demand for new compliance officers. The talent pool for experienced AML/CTF professionals will be stretched thin, a factor that businesses must consider in their resourcing and change management strategies.

Biometrics and digital identity

Ben Kennedy from Maple Finance highlighted the critical role of biometric verification. As a standard practice for his business, it has proven effective in preventing potentially fraudulent transactions and ensuring compliance. He stressed that biometrics should be seamlessly integrated with PEP and sanctions screening into customer onboarding or triggered at an appropriate time to efficiently support compliance while delivering the streamlined experience customers expect.

The panel also underscored the complexities of verifying non-individual entities like companies, trusts, and self-managed super funds, which involve multiple individuals and beneficial owners. Nick Boudrie from LAB Group emphasised that each individual in that structure must be engaged in the workflow to provide their own consent and complete the verification process. He highlights that you cannot have one primary director consenting on behalf of everyone else. This is where technology and self-service processes become vital.

Financial inclusion and practical pathways

A key question from the panel audience raised the issue of financial inclusion and how to handle a population that is not technologically literate or cannot complete a digital biometric verification. The panel agreed that two different processes are often needed: a digital one and a manual or alternative process.

However, a manual process introduces a new risk. Fraudsters may claim a lack of technological literacy to avoid digital verification. The key is to find supplementary identification methods to ensure you can still verify the customer and manage your risk. As the panelists concluded, if you can’t get comfortable with a person’s identity, you simply can’t do business with them.

At Equifax, we are here to help you prepare for the AML/CTF reforms as well as the expansion to Tranche 2 entities. We have a proven track record, trusted by businesses across many sectors.

Contact us today for a free consultation to learn how our tools can help you stay compliant, including our secure and efficient verification processes.