Consultation on proposed guidance relating to source of funds and source of wealth
The submission to the Australian Transaction Reports and Analysis Centre in response to its consultation on the proposed guidance on the source of funds and source of wealth in the AML/CTF compliance framework (Guidance) was prepared by the Financial Services Committee of the Business Law Section.
The Committee has the following four general comments and observations in relation to the proposed Guidance:
- the Guidance refers to the obligation to "establish" the source of funds and source of wealth as involving collecting information about the customer and verifying it for accuracy using reliable and independent documents and data. This conflation of the concept of 'establishing' (and other similar language) in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth) (the Rules) with the separate and more rigorous 'collect and verify' standard used in other contexts goes further than the existing mandate under the Rules as they are presently drafted;
- the Guidance appears to require that all AML/CTF Programs include risk-based procedures documenting when and how a customer's source of funds and wealth will be established. This requirement is not proportionate to the risks in many circumstances and is overly prescriptive. Under the Rules this obligation to establish the source of funds and source of wealth is risk based and is not necessarily to be expected in all AML/CTF Programs outside the basic requirements regarding High Risk / Foreign Politically Exposed Persons and Enhanced Customer Due Diligence;
- the Guidance would benefit from a more specific industry focus recognising the diversity of the risks presented by different designated services rather than the current "one size fits all" approach which appears to be heavily focused on banking and financial services reporting entities; and
- the Guidance could usefully focus on practical steps that reporting entities could take to deal with the obligation to establish customers’ source of funds and wealth.