MinterEllison has lodged a submission with the Attorney-General's Department (AGD) in response to its Consultation Paper on Modernising Australia's anti-money laundering and counter-terrorism financing regime. You can find a summary of the Consultation Paper and proposed reforms.
Key Points from our submission on reforms to AML/CTF regime
MinterEllison recognises the need to review and expand the reach of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime to align it to current international standards. We therefore support the key proposal of the Paper on that basis.
Our submission identifies four key areas which in our view requires further consideration.
1. Support for a principle and risk-based approach
The government’s support for a risk-based regime is welcome. However, we are concerned that some of its proposals appear to involve specifying detailed requirements in the AML/CTF Rules. We certainly agree that AUSTRAC should have the power to prescribe detailed requirements in the Rules where required, including to provide safe harbours for industry. However, prescription should not be the default position. Rather, industry should be required and encouraged to take a risk-based approach to designing appropriate measures for their own business.
MinterEllison developed a set of principles for the design of financial services regulation in the context of the Australian Law Reform Commission Review of the Legislative Framework for Corporations and Financial Services Regulation. We believe that those principles are equally relevant to the structure of AML/CTF regulation.
2. Streamlining the regime
The government’s proposals to streamline and simplify the regime are welcome. Not only will this reduce compliance costs but it will also align Australia’s regime with comparable jurisdictions.
- These proposals do give rise to some key issues. For example, If the distinction between Part A and Part B of AML/CTF programs is removed (which we support), will customer due diligence obligations be subject to independent review?
- It is appropriate to broaden the ability of related companies to join a designated business group (DBG), but should this extend to other types of business structures, such as joint ventures and parties to trust structures?
- It is important that the process for permitting a reporting entity to assist with an investigation of a serious offence does not impose further obligations on reporting entities.
We are also concerned with proposals for foreign branches and subsidiaries to be subject to Australian requirements by default. We believe it would be more appropriate for the Australian regime to specifically recognise the equivalence of regulation in other jurisdictions (subject to FATF standards) so that no further measures need to be taken by Australian business operating in those jurisdictions.
3. Digital assets
We support extending the regulation of digital currency exchanges beyond 'on' and 'off ramps. However, we have urged the AG to also review the definition of 'digital assets'. Such a review should pay regard to both FATF's concept of 'virtual asset service providers' as well as broader domestic consultation and reform in the area.
We query the rationale for extending regulation to initial coin offers (ICOs), noting that other fund raising activities, such as issuing securities, is not regulated. Rather than regulating issuers, it is the intermediaries which should be regulated as is the case in the current regime.
4. Real estate
We support the application of a flexible risk-based approach to the real-estate sector, where the extent of due diligence required to be undertaken is determined by the assessment of risk by the reporting entity.
However, measures should be implemented to ensure AML/CTF procedures are not duplicated across the same transaction when bringing new sectors into the regime. For example, where real estate transactions involve the provision of finance from a bank, real estate service providers should be able to rely on the customer due diligence processes undertaken by the bank.
We also query the proposal to apply the regime to leasing and property management services, which appears to be inconsistent with international practice and FATF standards.
Next steps
The Government has indicated it will release more detailed proposals in its second round consultation, expected to be released in September 2023.
Please contact us if you have any queries about any of our submissions or would like to discuss how any of the proposed changes may affect your business.
