Tranche 1.5 Is Coming, Are You Ready?
Well, CC Clients, we are pleased to confirm that changes are finally afoot in the form of Legislative updates, commonly known as Tranche 1.5 reforms. For those of you who have been around long enough, this is AUSTRAC’s precursor to Tranche 2 – but let’s not get ahead of ourselves.
Changes were made in December 2020 with an anticipated implementation timeframe of mid-2021 (to be confirmed). AUSTRAC is currently consulting on the Rules. If you are inclined to contribute, it would be worth inquiring with your relevant industry group to see if it is making a submission. But here is what you need to know and steps you should take to ensure changes required to your Risk Assessment and Program are well underway.
Customer Due Diligence – the proposed amendments clarify the requirement to complete application customers identification procedures (CIP) before providing a designed service. In addition, it sets out requirements for where a reporting entity has doubts about the veracity or adequacy of previously obtained KYC information, including verification of the identity of pre-commencement customers and low-risk service customers.
Tipping Off – Exceptions to the tipping off provisions have been expanded, enabling information from SMR’s to be shared with external auditors and offshore members of the same corporate or designated business group that are regulated by equivalent AML/CTF laws.
As part of your annual Program refresh, make sure you review both your Part A and B Program and identify any areas where KYC timing may require updating prior to the implementation date.
Include a reference to the exception of tipping off in your Program. Where you are sharing information within a corporate group or DBG offshore, consider any privacy and data sharing implications and have a process for ensuring information is provided only to restricted personnel.
Reliance – The proposed reforms expand circumstances where reporting entities can rely on a third party’s Customer Identification Procedures (CIP) or other identification procedures undertaken by a third party, customer due diligence procedures carried out by a third party in accordance with overseas laws and reliance within a corporate or DBG including where a member(s) of the group is located offshore. BUT there are conditions attached which include (in summary):
- Reliance agreements or arrangements must be put in place, and the entity placing reliance on the third party must conduct regular assessments of the agreement/arrangement and ensure the third party is complying with the AML/CTF Rules.
- Overseas laws of a foreign country must be equivalent to our own AML/CTF laws.
- You must include in your agreement that you are entitled to access the relevant CIP information within specified timeframes.
Now is a great time to review all third-party agreements/arrangements to see if they will need updating. If you have separate teams who manage your third-party arrangements (e.g., procurement), make sure they are aware of the changes, including those countries assessed as having an equivalent AML/CTF framework. Don’t forget to build third party agreement/arrangements into your annual oversight and testing calendar.
Correspondent Banking – the proposed reforms include clearer prohibitions for financial institutions from entering into a correspondent banking relationship that permits their accounts to be used by a shell bank. If the institution finds out that the correspondent bank allows its accounts to be used by shell banking, the relationship will need to be terminated. In addition, there are proposed expanded and strengthened due diligence and risk assessment requirements to be aware of during a correspondent banking relationship.
As part of your annual ML/TF Risk Assessment review (or prior to the implementation date), you should make sure Shell Banks are included in your prohibited customer list and update your Correspondent Banking Due Diligence requirements as required.
AUSTRAC Powers – The reforms will also allow AUSTRAC to collaborate with law enforcement and government bodies to detect, deter, and disrupt money laundering, terrorism financing, and other serious financial crimes and increase the availability of AUSTRAC information to its law enforcement partners.
Don’t assume your business will be aware of these changes – so make sure you plan training and awareness for the impacted areas in advance of the implementation date.
The consultation process will close on 11th March 2021. Here at MWC, we will be keeping a close eye on any further changes and the all-important implementation date, but as we always say, plan your work and work your plan, and the actions set out in this month’s blog will put you in a great position to make progress when you need to.