Increased supervision scope and penetration
Since the commencement of the AML/CTF Act in 2006, AUSTRAC has been increasing the level of its supervisory activity.
A key challenge for AUSTRAC into the future is to develop methodologies which will allow us to effectively engage with a larger proportion of the reporting entity population. AUSTRAC recognises that to achieve greater coverage of the regulated population, broader spectrum techniques for identifying issues of compliance must be used in conjunction with existing techniques such as on-site visits and desk reviews.
Over 2009-10, we explored ways to enhance our regulatory processes by utilising our strengths in data matching and data management. In particular, we have been considering what information can be obtained about a reporting entity's overall AML/CTF compliance levels through the analysis of transaction reporting behaviour.
Observable compliance behaviours
Not all industry sectors or reporting entities display identical ML/TF exposures. AUSTRAC, through analysis of transaction report data, is able to identify these differences and set its expectations about the compliance behaviours of different industry sectors.
In 2010-11, AUSTRAC will apply these methodologies to a broad range of reporting entities to identify reporting entities which may require more intensive regulatory intervention.
The following sections outline the activities to be undertaken in each industry sector in 2010-11.
Banks and other lenders
The banks and other lenders(2) sector is made up of a mixture of reporting entities, ranging from very large international banks through to small lenders.
A key focus in the banks and other lenders sector in 2010-2011 will be reporting volumes and accuracy. AUSTRAC's banks and other lenders regulatory activity will be targeted towards those entities which AUSTRAC assesses as having a high likelihood of incurring reporting obligations but which are not lodging transaction reports or where the number of transaction reports is out of line with industry peers.
Graph 1: AUSTRAC's supervisory assessments and outcomes
Description of graph: This graph shows AUSTRAC's supervisory assessments and outcomes, over time. In the 2007 to 2008 year, there were just under 100 assessments and approximately 1,000 requirements and recommendations. In the 2008 to 2009 year there were almost 300 assessments and approximately 2,000 requirements and recommendations. In the 2009 to 2010 year there were 500 assessments and almost 3,500 requirements and recommendations.
For reporting entities that are less likely to incur reporting obligations, the strategy will test whether appropriate policies and procedures are in place to ensure that, when reporting is required, it is undertaken in a timely and accurate manner.
In support of its 2010-11 regulatory activities, AUSTRAC will continue to develop its relationships with industry peak bodies.
Non-bank financial services
Our supervisory approach for the non-bank financial services (NBFS) sector will involve a variety of assessments including a focus on transaction reporting including Suspect Matter Reports (SMRs).
The focus of our reviews of Threshold Transaction Reports (TTRs) and SMRs will be to identify entities that should be reporting and to review the timeliness, completeness, quality and accuracy of the data included in the reports provided to AUSTRAC.
Our supervisory activity will also test the effectiveness of risk-based systems and controls implemented by reporting entities to ensure a robust environment exists for ongoing customer due diligence purposes, including a transaction monitoring program.
Gambling and bullion
The basis for 2010-11 gambling and bullion supervisory activity is to recognise the different levels of sophistication and adoption of AML/CTF legislative obligations within and between the industries that comprise the gambling and bullion sector.
Bookmakers, bullion dealers and hotels and clubs historically report low levels of transaction reports. AUSTRAC will be contacting a broad range of entities within this sector to confirm whether existing reporting levels are appropriate.
In addition, in recognition that some smaller reporting entities find a risk-based approach difficult to implement, AUSTRAC will be producing a series of practical guidance documents for different industry segments. In particular, AUSTRAC will be targeting practical guidance documents for bookmakers, hotels and clubs. We will examine the possible development of similar material for small bullion entities. The purpose of this guidance is to increase understanding of AML/CTF obligations, including reporting to AUSTRAC, using terminology easily understood by each industry segment. Focused follow-up compliance assessments will be conducted on a selection of entities within these segments.
Casinos, totalisators, corporate bookmakers and betting exchanges will be considered for detailed compliance activity where they are identified as having transaction reporting behaviours which are out of line with similar entities.
The casinos and betting exchanges will also be subject to compliance assessments on the quality of their transaction reporting to AUSTRAC as well as on specific aspects of their AML/CTF obligations, such as ongoing customer due diligence and transaction monitoring program requirements.
Money services businesses
AUSTRAC will engage with money services businesses (MSBs) whose reporting behaviour is outside the range of expected behaviours for this sector. In circumstances where AUSTRAC has concerns about the reporting behaviours of reporting entities, it will target these entities for more intensive supervisory activities.
In addition, AUSTRAC's supervisory activity in the MSB sector will involve on-site assessments of entities within money remittance providers, foreign currency exchanges and cash carriers with a focus on those entities specialising in remitting funds to higher risk jurisdictions.
During the year, AUSTRAC will develop practical guidance for certain entities within the MSB sector to assist them to understand their obligations under the AML/CTF Act.
Major reporters
The Major Reporters team is responsible for the supervision of AUSTRAC's highest volume reporters including larger banks and corporate remitters. These entities tend to be well resourced, accustomed to regulation, skilled in risk management and have the ability to access external expertise when required.
Supervisory activity with the major reporters in 2010-11 will involve on-site assessments and shorter, more narrowly focused reviews of transaction reports. The scope of the assessments will include, but may not be limited to, transaction monitoring programs. This will include an assessment of the resources allocated to transaction monitoring, processing, procedures and the management of alerts generated by transaction monitoring systems. Importantly, AUSTRAC will consider the adequacy of ongoing assurance or 'fit for purpose' activities undertaken by the reporting entity relating to its transaction monitoring systems.
AUSTRAC will undertake focused reviews of major reporters' transaction reports. AUSTRAC will consider the completeness, quality and accuracy of the data included in the reports and the consistency between large value TTRs and SMRs lodged. These reviews will also consider the appropriateness of SMRs lodged by entities through different relationship models. For example, SMRs that emanate from employees dealing with face-to-face retail interactions as compared to those emanating from relationship managers dealing with larger corporate and private banking clients.
During 2010-11 AUSTRAC will facilitate forums for reporting entities within the major reporters group that will consider issues of compliance as well as financial intelligence.
(2) Note that this section does not apply to reporting entities supervised by the Major Reporters team. Details of the supervisory approach for Major Reporters are set out above.
