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Consultation paper - AUSTRAC: Proposed changes to the annual compliance report



AUSTRAC is Australia's anti-money laundering and counter terrorism financing (AML/CTF) regulator and financial intelligence unit. In its AML/CTF regulatory role, AUSTRAC supervises approximately 13,800 reporting entities. AUSTRAC applies a risk-based approach to the regulation of reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) by applying higher amounts of regulatory effort in supervising reporting entities that have a higher exposure to money laundering/terrorism financing (ML/TF) risk.

Section 47 of the AML/CTF Act creates an obligation for reporting entities to submit an AML/CTF compliance report (referred to in this paper as the annual compliance report) to AUSTRAC, relating to the reporting entity's compliance with the Act, the regulations and the Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) during a reporting period.

The annual compliance report (ACR) is a key tool for AUSTRAC to obtain information to analyse and input into its risk-based approach to supervision. It comprises an online questionnaire with fixed choice responses across 22 key question areas. Exemptions for some reporting entities mean that currently approximately 6,500 entities have an obligation to complete the ACR. ACRs have been received by AUSTRAC since 2008 (in respect of the 2007 calendar year).

In accordance with the AUSTRAC supervision strategy 2012-14, AUSTRAC commenced a review of its compliance reporting framework in 2012. Through this review, AUSTRAC identified a need for change to the ACR to reflect the maturity of the AML/CTF regime and facilitate improved regulatory supervision. The review considered the effectiveness of the compliance report and identified the need to enhance the approach to ensure its continued relevance to industry and AUSTRAC.

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Problems with the current ACR

Through its review of the compliance reporting framework AUSTRAC identified a number of problems with the current ACR:

  1. The current questions have reduced in relevance over time as the AML/CTF Act has been bedded down, reducing the usefulness of the information collected for analysis and input into AUSTRAC's risk-based approach to supervision.

    This has occurred because the current ACR was designed at the time of the implementation of the AML/CTF regulatory regime as a census tool to gather reporting entity data and help industry understand their obligations. The ACR questions remain focused on implementation of reporting entities' AML/CTF programs rather than ML/TF risk and ongoing compliance. While useful in the initial implementation of the AML/CTF regime, this approach limits AUSTRAC's visibility over the maturity and effectiveness of reporting entities' AML/CTF programs.

  2. The regulatory burden of the current ACR may not be proportionate to the level of ML/TF risk exposure across the regulated population.

    The current ACR imposes the same regulatory burden on each reporting entity that completes it without taking into account ML/TF risk exposure. The ACR is the same for all reporting entities with no differentiation in the level or type of information requested.

  3. Some reporting entities have indicated that they regard completion of the current ACR as a burden with little or no value to them.

    As a consequence of the ACR's focus on implementation, some reporting entities perceive it as a 'tick the box' exercise that results in unnecessary administrative burden in its current form.

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AUSTRAC's objectives for the proposed changes

In response to the issues identified above, AUSTRAC has proposed changes to the ACR. The objectives of the changes are to enhance the ACR to:

  • inform and drive improved risk-based regulatory supervision activity
  • reduce unnecessary regulatory burden on reporting entities
  • improve AUSTRAC's understanding and measurement of ML/TF risk and effectiveness of AML/CTF compliance programs across reporting entities.

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Outline of the proposed changes to the ACR

In order to meet these objectives AUSTRAC considered a number of options and proposes the following approach:

New compliance report formats

AUSTRAC proposes to replace the current ACR with:

  • an enhanced compliance report (ECR) that would be completed by reporting entities in both the higher and medium-risk categories.

    The ECR is similar in structure and format to the existing compliance report. The questions reflect the maturation of the AML/CTF environment and reporting entities' increased familiarity and understanding of their obligations under the AML/CTF Act. The information collected in the ECR is aimed at helping AUSTRAC better understand levels of ML/TF risk and the effectiveness of a reporting entity's compliance approach.

  • an annual return (AR) for REs that represent a higher level of ML/TF risk.

    The AR will require a reporting entity to provide a comprehensive report on its business environment, ML/TF risk and the effectiveness of its AML/CTF program.

Who will lodge the annual return and the enhanced compliance report?

It is proposed that a reporting entity must lodge an AR and an ECR where it is either:

  1. part of a corporate group (where a corporate group is defined by reference to section 50 of the Corporations Act 2001) that has finalised group annual earnings of $100 million or more (as at 1 July of the compliance report period), or
  2. not part of a group and has total annual earnings of $100 million (footnote 1) or more (as at 1 July of the compliance report period), or
  3. part of a corporate group that has provided 25 million or more transaction reports (footnote 2) or provided transaction reports with a total value of $5 billion or more (in the calendar year prior to the compliance report period), or
  4. not part of a group and has provided 25 million or more transaction reports or provided transaction reports with a total value of $5 billion or more (in the calendar year prior to the compliance report period).

It is proposed that a reporting entity must lodge an ECR only where it is not part of the segment described above.

Who will be exempt from lodging an AR and ECR?

It is proposed that a number of entities will be exempt from the requirement to lodge either an AR or ECR, including:

  1. reporting entities, other than Remittance Network Providers (RNPs), currently subject to exemptions from the compliance report obligation - that is, reporting entities exempt from section 47 (by virtue of a rule or individual instrument), entities that are only item 54 providers, or entities that are only remittance affiliates
  2. reporting entities that are exempt from Part 7 of the AML/CTF Act
  3. reporting entities that have four or less employees (regardless of whether the employees are full-time, part-time or casual), other than in circumstances where that entity has annual earnings of $100 million or more or lodges transaction reports to the volume of 25 million or more or value of $5 billion or more.

It should be noted that while RNPs have been exempted from the requirement to lodge a compliance report for the last couple of years, it is proposed that they be required to lodge compliance reports now that the enhanced remittance registration requirements are in place and the AR and ECR have been updated to take into account RNPs.

Please refer to attachments E and F of the Regulation Impact Statement for samples of the new report formats:

Regulation Impact Statement - Proposed changes to the annual compliance report (Word, 6MB)

Regulation Impact Statement - Proposed changes to the annual compliance report (PDF, 3MB)

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The requirement for a Regulation Impact Statement

In line with the Australian Government Guide to Regulation issued in March 2014, AUSTRAC was required to prepare a regulation impact statement (RIS) in respect of the proposed changes to the ACR.

The purpose of this document is to provide an overview to assist reporting entities in reviewing and providing feedback on the proposed changes, which are outlined in the RIS titled Regulation Impact Statement - Proposed changes to the annual compliance report.

As part of the RIS, AUSTRAC has considered a range of options to enhance the current compliance reporting framework. The options are assessed in the RIS, including the approximate number of individual reporting entities impacted by each option.

The RIS attempts to measure the impact of regulation by quantifying the regulatory burden to businesses and identifying reductions in regulatory burden to offset the costs in relation to the identified options. The RIS is produced for public consultation to ensure stakeholders are informed of the proposed changes, the likely impact and can provide comment.

The RIS has been certified by the AUSTRAC CEO and the proposed options and regulatory costings have been considered and approved by Office of Best Practice Regulation (OBPR) to go to public consultation.

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Industry submissions

AUSTRAC encourages you to review the RIS and provide feedback on the proposed changes.

Submissions may be emailed to Compliance_Report_Review@austrac.gov.au

If you would like to make a written submission, please send it to:

Compliance Report Review
Planning, Coordination and Relief
PO Box 5516
West Chatswood NSW 1515

Closing date: The closing date has been extended by 4 weeks to Friday 28 November 2014.

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Next steps and implementation

Following the receipt of submissions, AUSTRAC will review and consider comments and feedback and incorporate any changes to the RIS where necessary. The RIS will require final approval by the AUSTRAC CEO and OBPR. When finalised, the RIS will be published on both the OBPR website and the AUSTRAC website.

AUSTRAC is proposing to implement the proposed changes to take effect for the compliance reporting period of 1 January 2015 to 31 December 2015. The relevant compliance report lodgement period will be from the first business day of January 2016 (Monday 4 January) until 31 March 2016.

AUSTRAC does not intend to change either the reporting frequency or period for submission of the ACR.

AUSTRAC will work with reporting entities and industry associations to develop guidance in relation to aspects of the reform, where necessary.

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  1. If an entity is an authorised deposit-taking institution or a registered financial corporation (or is a member of a corporate group of entities that includes such entities), the earnings means total profit before tax, depreciation and amortisation (PBTDA). For all other entities the measure is total earnings before interest, tax, depreciation and amortisation (EBITDA). Neither PBTDA nor EBITDA is to be adjusted for significant items. Subject to the rules for foreign corporations, the earnings will be determined by reference to the reporting entities' financial year earnings that had been finalised by 1 July of the compliance report period.
    Where a reporting entity is a foreign company, only the earnings from operations in Australia are to be included in determining the earnings of that entity or for determining the total earnings of the corporate group of which that entity is a member.
  2. A report given to the AUSTRAC CEO in the form required for subsections 43(2) or 45(2) of the AML/CTF Act, being a report of a threshold transaction or an international funds transfer instruction respectively, whether or not such a report was required to be given under either of those subsections.

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Last modified: 01/07/2015 12:28