This section provides additional information relating to some of the common designated services. In some cases, the designated services tables include terms which are not specifically defined under the AML/CTF Act. This section provides some guidance in relation to AUSTRAC's view of those terms.
- Table 1 - Financial services
- Account/deposit-taking services (items 1-5)
- Australian financial services licence holder arranging a designated service (item 54)
- Cash carrying/payroll services (items 51-53)
- Currency exchange services (item 50)
- Factoring a receivable (Item 8)
- Life insurance services (items 37-39)
- Loan services (items 6, 7, 48 and 49)
- Remittance services (items 31-32A)
- Securities and derivatives market(s)/investment services (items 33 and 35)
- Table 2 - Bullion
- Table 3 - Gambling services
Table 1 (section 6, AML/CTF Act) prescribes financial services activities that are designated services under the AML/CTF Act.
Which entities are captured by account and deposit-taking services?
The designated services in items 1-5 are restricted to services provided by:
- authorised deposit-taking institutions (ADIs)
- building societies
- credit unions
- a person specified in the AML/CTF Rules.
Currently, there are no AML/CTF Rules that specify any other persons who can provide account and deposit-taking designated services.
What does 'opening an account' mean?
The AML/CTF Act defines 'opening an account' as 'creating the account'. This is regardless of whether the account holder receives an account number or whether they (or any other signatory) can conduct transactions on the account.
Assessing a customer's application for an account usually involves several steps and it may not be clear the exact moment when the account is created. Until the reporting entity identifies the customer in accordance with the relevant customer identification procedures, the account may be considered 'created' or 'opened' but not 'operational' (that is, a transaction cannot yet be carried out for the account).
A reporting entity may not allow a transaction to be conducted on an account (as defined by item 3) until the account is operational.
What does 'deposit-taking' mean?
The terms 'deposit', 'deposit-taker' and 'deposit-taking' are not defined under the AML/CTF Act or AML/CTF Rules.
In general terms, a deposit can be described as a credit that is applied to an account and a deposit-taker is the person with whom the account is held (that is, the account provider). Deposit-taking is the act of receiving a deposit for an account that is held on a person's behalf.
What does 'allowing transactions on an account' mean?
'Allowing transactions on an account' includes debits or withdrawals, deposits and any transactions that do not relate to opening an account or becoming a signatory (these services are covered by items 1 and 2). These transactions may be delivered through various channels including electronic and face-to-face transactions.
What types of activities are captured by items 4 and 5?
Items 4 and 5 relate to taking deposits for purposes other than accounts, such as:
- arranging a bank cheque and paying a fee for a bank cheque
- making a payment to send funds electronically to another person's account
- transferring funds internationally.
When is an item 54 provider making an arrangement for a person to receive a designated service?
A person who provides a customer with an item 54 designated service (for example, a financial planner) must:
- hold an Australian financial services licence (AFSL) and be acting in the capacity of a licence holder
- make an arrangement for a person to receive a designated service (other than a service covered by item 54) that is also a financial service under the Corporations Act 2001.
For a financial planner, for example, this usually happens when the customer accepts and signs the Statement of Advice and the financial planner implements the recommendations contained in the Statement of Advice.
The following are examples of financial planners providing a customer with an item 54 designated service:
- A financial planner implements the advice given to a customer to invest in a share through a broker.
- A financial planner arranges for a customer to take out a life investment policy with ABC Life Ltd.
- A financial planner advises their client to obtain an interest in a product through an investor directed portfolio service and the financial planner undertakes transactions to realise this.
- A financial planner transfers money, with the written and signed consent of the client, from their client's investor directed portfolio service cash account to the client's bank account.
What does 'making arrangements' mean?
The phrase 'making arrangements' has a broader meaning under the AML/CTF Act than the definition of 'arranging' under section 766C of the Corporations Act. AUSTRAC considers 'making an arrangement' includes a scheme, plan, proposal, action, course of action or course of conduct to enable a customer to receive a designated service.
General indicators of 'a course of action or conduct' that is likely to amount to 'making arrangements' include, but are not limited to, the following activities:
- The person is integral to introducing and completing the provision of the designated service (which is a financial service under the Corporations Act) to the customer and the provision of that designated service may not have occurred without that person's involvement.
- The person negotiated the terms and conditions between the product issuer and the customer involved in the transaction.
- The person assisted the customer to complete a product issuer document, including:
- assisting and providing guidance on completing the product issuer's documentation
- explaining the meaning of questions and suggesting answers to complete the product issuer's documentation
- collecting and transmitting the customer's funds to the product issuer to facilitate completing the designated service.
What is 'cash carrying' and 'holding'?
Cash carrying involves transporting physical currency and refers to collecting and delivering physical currency, irrespective of the value involved. The person engaged to collect and/or transport the physical currency is not the owner of that currency.
Holding physical currency includes all activities associated with the custody of physical currency, irrespective of the value involved. The person holding the physical currency is not the owner of that currency.
The following are examples of collecting and delivering physical currency covered by designated services items 51 and/or 53:
- a cash carrier, security firm, contractor or courier collecting physical currency from, or delivering physical currency to, a financial institution branch and transporting it to or from another location on behalf of that financial institution
- a cash carrier, security firm, contractor or courier transporting an ATM cash canister which contains physical currency to or from an offsite ATM, or to or from another location (for example, a depot of the cash carrier)
- a cash carrier, security firm, contractor or courier transporting a bag, which the client has advised contains physical currency, to or from the client's premises, to or from the client's financial institution, or to or from another location on behalf of the financial institution
- a cash carrier, security firm, contractor or courier transporting a bag, which is said to contain physical currency, to or from the client's premises, to or from the client's financial institution, or to or from another location on behalf of the client
- a cash carrier, security firm, contractor or courier transporting physical currency to or from an air or sea port, for on-forwarding to or from an overseas location on behalf of a client
- a cash carrier, security firm, contractor or courier holding physical currency in its depots, where that currency is owned by a financial institution or a commercial client.
What are 'payroll services'?
'Payroll services' includes all activities associated with preparing salary/wages packets that contain, either in whole or part, physical currency that has been collected, where the provider of the designated service is carrying on a business of preparing payrolls.
Payrolls are usually prepared from information provided by a client who is an employer, or is an agent of an employer, to pay salaries and/or wages that contain physical currency.
Does the AML/CTF Act apply to cash carrying activities undertaken on an ad hoc basis or which do not comprise a person's core business activities?
Cash carrying activities undertaken while 'carrying on a business' of collecting, holding or delivering physical currency are captured by the AML/CTF Act.
An entity which is engaged in the business of collecting or holding physical currency as part of their normal business activities, including those operating cash carrying or cash-in-transit business, are captured by the Act.
This is different to the situation where an entity undertakes cash carrying, holding or delivery activities which are outside the core activity of the business and/or provided for non-commercial purposes (for example, a retailer or financial institution collecting donations on behalf of a charity). Such activities are not intended to be captured by the Act.
Does an entity involved in collecting, delivering or holding packages of physical currency need to know, or enquire about, the contents of those packages to avoid breaching the AML/CTF Act?
The AML/CTF Act does not require a courier to establish whether items being transported contain physical currency. Where it is obvious that packages being transported do contain physical currency and the services are provided in the course of carrying on a business of collecting physical currency, the service will be captured by the AML/CTF Act.
What is a 'currency exchange service'?
Under the AML/CTF Act, a 'currency exchange service' involves physically exchanging currency, where currency from one country is converted into currency of another country. Most commonly, currency exchange occurs at bureaux de changes, banks, hotels and airports within a retail environment.
For a currency exchange activity to be captured as a designated service, it must be conducted in the course of carrying on a currency exchange business. A transaction between two individuals in a personal capacity is not considered a designated service.
What is 'factoring'?
Generally, the term 'factoring' refers to the practice where a person, the 'factor', advances money to another person in exchange for taking on that other person's receivables or debts. Accordingly, the factor purchases the customer's debt often at a cost lower than the value of the debt.
By factoring a debt, the customer can promptly address a short-term cash flow problem while no longer having to collect or recover the debt. Collection or recovery of the debt then becomes a matter for the factor who now owns that debt.
What is a 'receivable'?
The AML/CTF Act does not specifically define 'receivable'. Generally, 'receivable' refers to claims held against customers and others for money, goods or services.
What types of life policies are captured under the AML/CTF Act?
The AML/CTF Act captures life policies (including risk life insurance products) with the following characteristics:
- contracts of life insurance of at least one year in duration which:
- provide for payments on the death of a person or a contingency dependent on the termination (but not death by accident or death for a specified sickness) or continuance of human life, or
- are subject to payment of premiums for a term dependent on the termination (but not death by accident or death for a specified sickness) or continuance of human life, or
- provide for payment of an annuity for a term dependent on the continuance of human life, and
- do not involve:
- benefits provided from a Fair Work (Registered Organisations) Act 2009 'organisation' of employees, to employees or their dependants
- superannuation benefits, pensions or payments to employees or their dependants provided by an employee and/or employer organisation on retirement, disability or death
- funeral benefits
- policies issued by an employer to an employee, and
- are not any of the following types of policies:
- those with no prescribed minimum surrender value (other than that which may be provided for in the policy documentation and promotional material);
- regular premium policies where the total annual premium payable is less than $1,500
- single premium policies where the single premium is less than $3,000
- consumer credit insurance contracts.
Are reinsurance contracts relating to life policies captured under the AML/CTF Act?
The AML/CTF Act captures reinsurance contracts that relate to life insurance policies.
A reinsurance contract is where part or all of the risk covered by an insurance contract has been assigned or transferred to another insurer. The original life policy will normally be between the policy holder and the insurer. To minimise its risk, the insurer enters into an arrangement with a third party (the reinsurer), who agrees to indemnify the insurer if a payout under the insurance policy occurs.
What is a 'loan'?
Generally, a 'loan' is a financial transaction where one party (the lender) agrees to give another party (the borrower) a specific amount of money that must be paid back in full, often with interest, at some future date.
What is a 'loan guarantee'?
The AML/CTF Act does not define 'loan guarantee'. Generally, a loan guarantee is a promise by a third party to repay the loan to the lender if the borrower fails to do so.
What loans are captured under the AML/CTF Act?
The following are examples of the types of loans captured by the AML/CTF Act:
- A personal loan is provided to an individual for personal use. It is usually unsecured and based on the borrower's credit history and perceived ability to pay.
- A mortgage loan is a loan secured against property (usually real estate). If the customer cannot repay the loan, the lender can sell the customer's real estate to recover the money loaned.
- A margin loan allows a person to borrow money to invest in shares and other financial products, using investments, such as shares, as security.
- A student loan allows an individual to borrow money to cover study-related costs.
- A premium funding loan is a short-term loan that allows a borrower to spread the cost of an insurance premium over a specified period of time instead of making a single lump sum payment.
Are mortgage or finance brokers reporting entities under the AML/CTF Act?
Whether a mortgage or finance broker is a reporting entity under the AML/CTF Act depends on whether it provides one or more designated services. A mortgage or finance broker is not a reporting entity for the purposes of the AML/CTF Act where it has a contractual arrangement to:
- act as an agent for lenders; or
- act as a service provider for lenders.
What are remittance services?
Generally, remittance services facilitate the transfer of money or property from a customer in one location and pay an equivalent amount in cash or value to a beneficiary customer in another location, often outside the formal financial and banking system. In different communities this form of money transfer may be known as hawala, hundi, chuyen tien, yok song geum or pera padala.
What remittance activities are captured by the AML/CTF Act?
Items 31, 32 and 32A (table 1, section 6, AML/CTF Act) specify the three designated services relating to remittance activities which are captured under the AML/CTF regime. These items focus on reporting entities that provide designated remittance arrangements by:
- accepting an instruction to transfer money or property under a designated remittance arrangement (regardless of whether or not they actually accept money and/or property as part of this instruction)
- making money or property available, or arranging for it to be made available, to an ultimate recipient as a result of a designated remittance arrangement
- operating a network which provides a platform or operation system to facilitate transferring money or property under a designated remittance arrangement.
Reporting entities that provide one or more of these designated services must be registered on AUSTRAC's Remittance Sector Register.
Fore information about registration see Chapter 5 - Remitter registration requirements. This includes guidance clarifying the obligations of reporting entities where they provide remittance services that are incidental to their core business.
What are the necessary elements in providing an item 33 designated service?
A provider of an item 33 designated service must be:
- acting in his/her capacity as agent of a person (the customer); and
- acquiring or disposing of securities, derivatives, carbon units, Australian carbon credit units, eligible international emissions units or a foreign exchange contract, on behalf of a customer; and
- undertaking the acquisition or disposal in the course of carrying on a business of acquiring or disposing of securities, derivatives, carbon units, Australian carbon credit units, eligible international emissions units or foreign exchange contracts and the service is not specified in the AML/CTF Rules.
An agency relationship must exist between the reporting entity and the customer. For example, where a financial planner, who is also a broker, acquires or disposes of shares on behalf of the customer, the financial planner is providing an item 33 designated service.
Item 33 typically applies to AFSL holders who are authorised to carry out broker-type activities as agents for another person to acquire and dispose of securities and are defined as 'market participants' in the Australian Securities Exchange market rules. Market participants are also commonly known as stockbrokers, brokers and trading participants.
Are managed investment schemes captured by the AML/CTF Act?
Companies which carry on a business of issuing or selling interests in managed investment schemes are providing a 'designated service' under item 35.
For the purposes of the AML/CTF Act, a 'managed investment scheme' (also known as managed funds, pooled investments) is a scheme that has the following features:
- people are brought together to acquire an interest in the scheme
- money is pooled together with other investors (often many hundreds or thousands of investors) or used in a common enterprise
- a 'responsible entity' operates the scheme and investors do not have day-to-day control over the operation of the scheme, or
- a timesharing scheme.
What types of investments are not managed investment schemes?
Generally, only investments that are 'collectively owned' or acquired by way of pooled investor funds are managed investment schemes. Some examples of investments that are not managed investment schemes include:
- regulated superannuation funds
- approved deposit funds
- debentures issued by a body corporate
- barter schemes
- direct purchases of shares or other equities
- schemes operated by an Australian bank in the ordinary course of banking business (for example, term deposits).
What activities are not captured by item 35?
Chapter 21 of the AML/CTF Rules exempts certain activities that would otherwise be included within item 35. The exemptions in Chapter 21 mean the following are not regulated under the AML/CTF Act:
- a disposal or purchase of a security on a prescribed financial market
- certain off-market issues of an interest in a managed investment scheme.
Table 2 (section 6, AML/CTF Act) prescribes bullion-related activities that are designated services under the AML/CTF Act.
What is 'bullion' for the purposes of the AML/CTF Act?
The term 'bullion' is used in a commercial context in the AML/CTF Act. AUSTRAC considers the following definition of 'bullion' is appropriate for the purposes of the AML/CTF Act:
'Bullion' means gold, silver, platinum or palladium authenticated to a specified fineness in the form of:
- bars, ingots, plates, wafers or other similar mass form; or
that trade at a price determined by reference to the market value of the constituent metal and the authenticated fineness of the item.
'Authentication of fineness' (also known in the industry as 'assaying') means a commercially acceptable hallmark, stamping or another means of authenticating the base form of an item.
Which metals and metal variants are not considered to be bullion for the purposes of the AML/CTF Act?
AUSTRAC does not consider platinum group metals (other than platinum and palladium) comprising iridium, rhodium, osmium and ruthenium to be bullion. These metals are used predominantly for industrial purposes, rather than for trade-based investments.
AUSTRAC does not consider 'collector', 'proof' or other coins traded for their numismatic (that is, their inherent value as a collectible coin), commemorative or rarity value to be bullion.
AUSTRAC also does not consider granules to be 'bullion', because by definition granules cannot bear a means of authentication of fineness.
Is the sale of 'collector coins' a designated service?
Generally, AUSTRAC does not consider a 'collector' or 'proof coin' to be bullion because its value is determined based on qualities such as rarity and condition, rather than its precious metal content.
However, if the price of a collector or proof coin is determined by reference to the value of its precious metal content, then it may be a bullion coin (depending on the level of purity of the metal). If such collector or proof coins (determined by reference to the value of the precious metal content) are purchased or sold in the course of carrying on a business, this activity will be a designated service and the purchaser or seller of such a bullion coin will be a reporting entity under the AML/CTF Act.
What are 'bullion coins'?
A 'bullion coin' has a precious metal purity of at least .9166, and is traded at a value principally determined by reference to the market value of the constituent metal.
Does the AML/CTF Act only apply to businesses that trade bullion as their primary business?
Under the AML/CTF Act, buying or selling bullion in the course of 'carrying on a business' is a designated service, even where the primary business is not a bullion trading business (for example, mining companies or refiners who also sell or purchase bullion).
Is a person who facilitates the buying or selling of bullion by introducing a buyer or seller a reporting entity?
A person may facilitate the buying and selling of bullion by introducing a potential buyer to a seller or transporting the bullion from the seller to the buyer. AUSTRAC does not consider these activities to be designated services under items 1 and 2.
However, if ownership of the bullion passes through the person and they make or receive payment in return for receiving or giving up ownership, then that person may be buying or selling bullion.
Is purchasing or selling bullion in a personal/private capacity a designated service?
A purchase or sale of bullion that is done in a personal capacity is not a designated service.
Table 3 (section 6, AML/CTF Act) prescribes gambling service activities that are designated services under the AML/CTF Act.
What is betting?
Generally, a person engages in betting (gambling) when the person stakes or risks something of value (usually money) on the outcome of a contest of chance or a mix of chance and skill or a future contingent event not under their control or influence. This is done on an agreement or understanding the person, or someone else, will receive something of value if a certain outcome occurs.
Do AML/CTF obligations apply if betting is done by means other than cash (such as by credit, chips or tokens)?
Receiving or accepting bets is a designated service under the AML/CTF Act, regardless of whether the bet is done by cash, or on credit or by using chips or tokens.
What types of gaming machine activities are captured as designated services?
Specifically, these designated services relate to:
- a controller of an eligible gaming machine venue allowing a person to play a game on a gaming machine
- a controller of an eligible gaming machine venue paying out winnings on games played on a gaming machine
- allowing a person to play a game or paying out winnings on certain games which are not played on gaming machines.
A person who provides one or more of these designated services is a reporting entity under the AML/CTF Act. The reporting entity is generally the holder of the licence/authority to operate gaming machines.
Exemptions for persons who operate electronic gaming machines
Chapter 52 of the AML/CTF Rules exempts a person who operates no more than 15 electronic gaming machines from a range of obligations under the AML/CTF Act including:
- customer identification and verification
- threshold transaction reporting, international funds transfer instruction reporting and compliance reporting and providing further information about electronic funds transfer instructions
- adopting and maintaining an AML/CTF program
- certain record-keeping obligations.