Financial Services Update: Government Review of AML/CTF Regime recommends simplification and regulation

In this edition:

  • Government Review of AML/CTF Regime recommends simplification and regualtion of lawyers and accountants;
  • Changes to ASX Appendices to improve consistency; and
  • Suspension for Melbourne company that failed to lodge financial statements.


Government Review of AML/CTF Regime recommends simplification and regulation of lawyers and accountants

On Friday 29th April 2016, the Minister for Justice released the long awaited Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006(Report) and associated rules and regulations. You may recall that the government commenced this review in 2013 and undertook consultation with industry in 2014-15.

Overall, the Report acknowledges the widespread concerns about the current Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regulatory regime being overly complex and cumbersome, particularly for small to medium businesses, making compliance challenging and expensive.

The Report has made 84 recommendations for government to consider.  Key topics include the simplification of the AML/CTF Regulatory framework, AML/CTF Programs and CDD requirements. The old chestnut – widening the scope to introduce tranche 2 has been raised again, albeit with loose reference for the need for further consultation before any change can occur! No doubt this is good news for those industries caught by tranche 2.

AUSTRAC has welcomed the government’s report and recommendations highlighting the opportunity to:

  • simplify the AML/CTF Act and Rules in areas that have not been effective;
  • provide avenues to expand its ability to provide relief where risks are low; and
  • permit AUSTRAC to re-assess where risks have changed and address regulatory gaps; for example professional facilitators whose activities are intertwined with the financial system, emerging platforms and off-shore services that may exploit vulnerabilities.

A summary of the key recommendations made in the Report are below.

Simplification of AML/CTF Regulatory Regime

  • Simplify the Act and the Rules to improve accessibility, understanding and compliance.
  • Consolidate the Financial Transactions Report Act 1988 requirements into the AML/CTF Act.
  • AUSTRAC to provide greater guidance on how to achieve compliance.

AML/CTF Program

  • Merge and streamline Part A and Part B requirements for an AML/CTF Program into a single requirement for reporting entities to develop, implement and maintain an AML/CTF Program that is effective in identifying, mitigating and managing their ML/TF risks.
  • Introduce serious breach reporting obligations for reporting entities.
  • Review the validity of the current reporting requirements – s47 reports, ITFRs.

Simplification of Customer Due Diligence (CDD) Requirements

  • CDD Rules should be streamlined and simplified as a priority, using plain language to facilitate ease of use and supplemented by enhanced guidance. This would include:
    • the introduction of a single simplified CDD procedure for customers replacing the safe harbour and simplified verification procedures currently in place; and
    • expanding the availability of simplified CDD to designated services and customers that have a minimal or low ML/TF risk.
  • Consideration should be given to utilising new technologies, as alternatives to the existing minimum ‘know your customer’ requirements for individual customers.
  • Amend the AML/CTF Act to expand the ability of reporting entities to rely on customer identification procedures performed by a third party, subject to conditions.

Widening the scope – tranche 2

The Report recommends that the Attorney-General’s Department and AUSTRAC, in consultation with industry, should:

  • develop options for regulating lawyers, conveyancers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act (see our previous blog Lawyers and Real Estate Agents to feel the force of new AML/CTF regulations), and
  • conduct a cost-benefit analysis of the regulatory options for regulating lawyers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act.

Designated Services and activities

  • AUSTRAC should closely monitor the ML/TF risks associated with new payment types and systems (including front-end applications), to ensure gaps do not develop in Australia’s AML/CTF regime.
  • The AML/CTF Act should be amended to:
    • ensure that digital wallets are comprehensively captured by AML/CTF regulation;
    • expand the definition of e-currency to include convertible digital currencies not backed by a physical ‘thing’; and
    • regulate activities relating to convertible digital currency, particularly activities undertaken by digital currency exchange providers.
  • AUSTRAC should identify designated services that pose a high ML/TF risk when provided to an Australian customer by an offshore-based business.


Changes to ASX Appendices to improve consistency

An ASX consultation paper released on 26 February 2016 proposes revisions to ASX Listing Rules Appendices 4C and 5B relating to quarterly cash flow statements. Written submissions closed Friday 29 April, and it is anticipated that the final changes will be released before June 2016 and will come into effect for the quarter beginning 1 July 2016.


Mining exploration entities are required to report quarterly cash flow information in an Appendix 5B while all other start-up entities are required to report quarterly cash flow information in Appendix 4C. Both Appendices are designed to reflect the cash flow statements usually included in an entity’s annual and half-yearly financial statements, as per accounting standards. They require that mining and non-mining entities report on a quarterly basis in order to expand on certain aspects that are deemed particularly relevant for investors, e.g. providing detailed breakdowns of payments made to or received from related parties.


The problem with both Appendices is that they have been made independently of each other, therefore creating some inconsistencies. Moreover, they have not kept pace with current accounting standards.


The proposed changes seek to address these issues as well as to make the two Appendices more user friendly from the perspective of issuers and investors.

The proposed changes include:

  • consistency with accounting standards and use of accounting terminology;
  • for cash flows from operating activities – implementation of separate and consistent categories for “staff costs” and “administration and corporate costs”;
  • for cash flows from investing activities – inclusion of new categories and changes in terminology in relation to tenements, investments, property, plant and equipment, and loans;
  • for cash flows from financial activities – references to the proceeds from the issue of convertible notes, proceeds from the sale of forfeited shares, and transaction costs related to loans and borrowings;
  • new required supplementary information; and
  • other minor drafting and formatting changes including the adoption of new, more intuitive numbering system of the different sections of the Appendices.


Suspension for Melbourne company that failed to lodge financial statements

A Melbourne-based company has had its Australian financial services (AFS) licence suspended for six months after it failed to comply with reporting obligations. Allegianz Pty Ltd (Allegianz) failed to lodge documentation with ASIC and failed to report the breach when it was noticed.


As an AFS licensee, Allegianz was legally required to submit specific documents to ASIC. The company breached its licence conditions by failing to lodge the following documentation over consecutive years:

  • financial statements;
  • auditor reports; and
  • auditor opinions.

This failure was in spite of repeated requests by ASIC to comply with the reporting requirements. Further to this, when Allegianz became aware of these significant breaches of their legal obligations, it failed to advise ASIC in writing within 10 business days. ASIC Deputy Chair Peter Kell stated that this failure to comply with their reporting obligations could be “an indicator of a poor compliance culture” and added that “ASIC won’t hesitate to act against licensees who do not meet these important requirements”.

Allegianz’s licence has been suspended for a six month period due to these breaches.

Focus on culture

Although the suspension of Allegianz’s AFS licence was based on clear breaches of its legal obligations, it is interesting that it was linked to ASIC’s broader focus on compliance culture. As we have discussed previously, ASIC has targeted culture as a key aspect of compliance. See our previous blog: The Spotlight is on Compliance Culture. Given the extent to which AFS licensees are expected to self-report breaches, the importance of seeing legal compliance as a priority is regularly reinforced by ASIC.

Lessons for AFS licencees 

If Allegieanz had notified ASIC when it became aware of the breaches, this could have led to a less serious penalty as it would have more clearly indicated that compliance was seen as a priority for the company and that they took proactive steps to rectify any breaches.

Embedding a culture of compliance can be a difficult job for companies, but given the focus that ASIC is placing on this area, it should be seen as a priority.

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