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In an attempt to streamline customer verification and correspondent banking, AUSTRAC has issued rules to support the introduction of new AML reforms.
New AML reforms took effect in Australia on Friday, June 18th. The reforms have paved the way for the implementation of higher due diligence standards, allowing financial institutions to rely on third-party service providers to meet KYC requirements.
The reforms, also known as “Tranche 1.5”, were published last October and passed in December.
Tranche 1.5 includes measures to streamline correspondent banking relationships, making it easier for banks to perform customer identity verification. The reform also allows suspicious matter reports to be shared with third parties in limited circumstances.
Following this, AUSTRAC released new rules supporting the introduction of Tranche 1.5 reforms. The amendments mentioned include requirements for financial institutions to assess risks associated with money laundering, terrorism financing, and other serious crimes of a correspondent banking relationship when carrying out initial due diligence and ongoing due diligence assessments.
Ongoing due diligence procedures must be performed every two years (at least) on correspondent banking relationships.
The due diligence procedures include assessments of the ownership, control and management structures of correspondent banks, as well as their parent companies, the banks’ business, and the effectiveness of their AML/CTF controls, among other factors.
A key amendment that has surfaced is the prohibition of banks from forming relationships with correspondent banks that allow their accounts to be used by shell companies.
The new rule also contains guidelines for reporting entities when in doubt about the accuracy and sufficiency of KYC information obtained previously.
This change comes as a consequence of a recent legislative change that required all reporting entities to complete the Applicable Customer Identification Procedure (ACIP) prior to providing services to a customer.
Tranche 1.5 has also laid down the procedures that can be relied on other than the ACIP, such as Customer Due Diligence procedures as carried out in accordance with global standards.
The AML reforms are based on the draft rules that were released in January 2021. Full details can be viewed here.
Suggested Read: AUSTRAC Tightens Regulations for Enhanced AML Compliance