Keeping AML reform burden from outweighing the benefits

In a detailed joint submission with CA ANZ and CPA, the IPA has outlined a series of measures to keep the anti-money laundering and counter-terrorism financing (AML/CTF) reforms from adding unnecessary compliance costs to much needed AML/CTF reforms.

Fundamentally, the IPA is urging the government to ensure that the reforms harmonise rather than duplicate the existing professional obligations accountants practice under, as well as ensuring that the reforms reflect the realities of small and medium businesses, and the accountants who serve them.

Rethinking risk rating

As proposed, the reforms call for reporting entities to retrospectively rate the risks of all existing customers once the changes are instituted.

Given the thousands of small and micro businesses that are to be brought into the AML regime, risk rating all customers would incur unnecessary compliance costs that may compromise the intended benefits of the proposed reforms.

Such risk ratings will not detect past crimes, nor will it deter any in the future. This is especially true given that many existing customers may not seek designated services once the reforms are implemented and some accountants may chose to avoid providing those designated services.

Instead, accountants should subject all customers to ongoing due diligence. When a customer’s risk profile changes or there is a need to report a suspicious matter, accountants can then take appropriate action.

The scale of these reforms means we must be vigilant in ensuring the cost of compliance is proportionate to its effectiveness in deterring, detecting and disrupting criminal activity.

Adapting to small business

The fact that the AML regime is expanding to cover so many more small businesses means it is important that the reforms don’t take a purely big-business lens.

On the practice side, penalties must be appropriate. For example, the penalty for providing designated services without being enrolled with AUSTRAC is $18,500 per day.

While a fine this size might make sense for a large bank, it does not for a small payment service provider.

Rather than being bound by a one-size-fits-all pecuniary scheme, regulators should be able to take into consideration the nature and scale of non-compliance and the ability of a reporting entity to pay the penalty.

Similarly, language in the proposed reforms refers to ‘boards or equivalent senior management’. This language will not resonate with small and micro businesses, sole traders or partnerships, although these are the most common structures of the accounting practices that will become reporting entities.

For the reforms to make sense and be relevant to all reporting entities, their language must match that of those who are to be covered by them.

There are other instances in the reforms where we have urged language to be rethought for better clarity.

For instance, the word “collect” is used in relation to recording the details required to verify a customer’s identity.

There is a very real risk that many people new to AML will interpret a direction like this to mean to copy documents and sources, creating privacy risks.

The rules and guidance material for these reforms should take pains to use language that can be readily understood by the full breadth of new reporting entities. In this instance, “collect” could be replaced with “sight and record”.

Getting the timeline right

The IPA and its peer organisations have recommended a two-year implementation period, to not only give accountants time to familiarise themselves and their staff with the new obligations, but also for AUSTRAC to run adequate community awareness programs.

Ever-shifting regulatory and compliance needs mean accountants are already grappling with considerable workloads, and must be given enough time to develop and implement an AML/CTF program.

Just as crucially, AUSTRAC must develop and communicate guidelines and toolkits for impacted industries, as well as raising community awareness about the new requirements and their importance to efforts to combat financial crimes.

The better the understanding the business community has of customer due diligence requirements, the less extra time accountants will need to spend on onboarding new clients.

Making business register searches free

With accountants to be expected to take steps to be reasonably satisfied of the ownership and control structure of a business, they will need to be able to verify its existence, its shareholders and their respective shareholdings.

Currently, the source of truth for this information is the government’s business register, a service that incurs a fee for every search for relevant information.

To aid compliance, we are urging that this information be made available at no cost, as it is in countries such as the United Kingdom, the United States and New Zealand, to name just a few.

There are many other suggestions IPA, CA ANZ and CPA have made to the Attorney General, but one of the most crucial among them is to establish an industry working group to support the design and implementation of these reforms.

Such a group can help ensure a well-managed roll-out of the broadened regime, as well as the ability to quickly discuss and respond to any unforeseen challenges that might arise.

Vicki Stylianou is IPA’s Advocacy and Professional Standards Group Executive.