FAAA warns advisers to prepare for AML/CTF overhaul

Anti-money laundering and counter-terrorism financing (AML/CTF) rules have been in place for close to 20 years, however the latest changes to the regime are set to reshape the way financial advisers and licensees need to operate in this space.

Speaking on a Financial Advice Association Australia (FAAA) webinar last week, senior manager of policy Heather McEvoy explained that advisers have work to do in understanding the impact of the upcoming changes on their business.

“If you look at the financial advice space, a lot of people may assume that because you may not be involved in the actual transaction of funds, that there isn't a risk to your business, McEvoy said.

“But it's important to understand that the breadth of the AML/CTF regime is not just about money laundering and terrorism finance. It covers cyber fraud, welfare or Centrelink fraud, and tax evasion.”

She added: “To illustrate that money laundering and terrorism risk is a risk to our profession, it could be as simple as a lifestyle that your client talks about, all the assets they hold and goods they purchase, appear in excess of their income.

“This will be a sign that they earn additional income through illegal activities. The reason why this law exists, and also why tranche two will capture lawyers, accountants and real estate agents, because it's often advisers who understand more about their clients than financial institutions that these people engage with.”

McEvoy said that highlights the importance of service providers working together to identify this behaviour, which will make it harder for bad actors to use the financial system in this way.

“Regardless of if you're self-licensed, an authorised representative with your own business, or a larger licensee, money laundering and terrorism financing is a risk to your business,” she said.

“We encourage you to think about AML differently, and not just differently in terms of doing what product providers ask you to do, but also differently in terms of other regulatory obligations.”

Importantly for advisers, whether they need to follow the additional rules will depend on whether they provide Tranche 2 services.

“The reason why identifying services you provide is so critical is because there is actually quite a significant number of additional obligations that you'll have to meet if you do provide an additional Tranche 2 service,” McEvoy explained.

“This will be a business decision for advisers and licensees to determine whether to provide item 54 services and utilise the exemptions, or provide additional services to clients and comply with the full range of obligations.

“These include governance controls, compliance reporting, including employee due diligence and training and ongoing CPD, and customer monitoring. So, it's no little addition, it is quite a lot of additional requirements there. It's important to keep in mind that determining whether you can make use of the exemptions because of the type of designated services that you provide must be done at the AFSL level, not the practice or CAR level.”

She added that this makes it even more vital that advisers understand the Tranche 2 designated service definitions so they can determine whether their business provides any.

“If these Tranche 2 services are provided by you personally or another professional within your firm, such as an accountant, speak with your licensees about these services that your businesses and you personally provide, and work with your licensee to work out how that can work in practice.”