Reference no: EM132330091

Lead compliance with financial services legislation and industry codes of practice

Scenario

You are an AML consultant, previously employed in the financial sector and also by the AML/CTF regulator, AUSTRAC. You have been contracted by a financial sector industry association to provide advice on the outcomes of the FATF and APG (2015) Anti-money laundering and counter-terrorist financing measures - Australia, Fourth Round Mutual Evaluation Report (‘MER').

The MER identified several deficiencies in Australia's regulation of customer due diligence (CDD), culminating in a technical rating of ‘partially compliant'. You have been asked to review the relevant documentation to assist in an understanding of this issue.

One of the deficiencies identified in the customer due diligence requirements related to agents of individual customers. Customer due diligence is outlined in FATF Recommendation 10 and agents of individual customers is specifically addressed in the Interpretive Note to Recommendation 10. It is also referenced at Criterion 10.4 in the FATF's Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems. (Note: each of these documents can be accessed on the FATF website.)

In Australia's 2016 Report of the Statutory Review of the AML/CTF Act, this issue was not specifically considered, other than the following comment on page 61:

Addressing general CDD deficiencies identified in the MER

With the introduction of the June 2014 amendments to the AML/CTF Rules, Australia has implemented the FATF's core requirements for CDD. The deficiencies identified in the MER are generally of a minor, technical nature and often relate to the lack of an explicit obligation in the AML/CTF Rules. While these obligations often do exist, the complexity of the AML/CTF Act and Rules makes it difficult to understand the scope of obligations and how the regime operates to impose these obligations.

You will need to include in your advice any possible additional requirements that may need to be implemented by reporting entities if Australia changes its regulations to overcome the deficiency outlined in the MER.

In your consideration and advice to the industry association, you should discuss the following issues.

Questions

a. Briefly outline and evaluate the issues raised in the MER in respect of agents of individual customers by reference to the following documents:

• MER discussion of Criterion 10.4

• The FATF Recommendations (updated October 2018)

• Interpretive Notes to the FATF Recommendations

• Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems.

Based on your evaluation, do you agree with the characterisation from 2016 Report of the Statutory Review of the AML/CTF Act that the deficiencies highlighted by your evaluation are of a ‘minor, technical nature'? Justify your answer.

b. Section 89 of the AML/CTF Act and Part 4.11 of the AML/CTF Rules address the issue of agents of customers. Critically examine section 89 and rule 4.11. Evaluate and advise as to where the regulation in Australia is deficient.

c. Review the ways in which the Australian Government implements its AML/CTF regulatory regime. Outline the approach that you think the Australian Government should take to implement potential changes to the regime to achieve compliance with FATF Criterion 10.4.

In discussing this issue, consider whether there may need to be:

• amendments to the AML/CTF Act

• new or amended AML/CTF Rules, and/or

• additional guidance materials.

In your response, address the role of AUSTRAC.

d. Describe the potential changes that may be needed in a reporting entity's AML/CTF program to ensure compliance and effectiveness in meeting the FATF's requirement as addressed in Criterion 10.4 and the consequent changes in Australia's AML/CTF regulations. Analyse the effect that the changes to this requirement would have on the reporting entity's organisational requirements and work practices in the following areas:

(i) Customer due diligence (initial and ongoing) (ii) Communication and training (iii) Record keeping (iv) Board and senior management oversight.

e. Discuss the role of the AFMA Code of Conduct, or another relevant industry code of conduct, in promoting values-based compliance as opposed to rules-based compliance.

[Word limit: 2,000 words]

Attachment:- Assesment.rar