On 11 September 2016, the Australian Government introduced the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2016 (No. 1) (the Amendment) which makes important changes to Chapter 4 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.1) (Rules). The Amendment:
- Allows reporting entities to now collect know your customer (KYC) information “about” a customer rather than requiring KYC information to be collected “from” a customer.
- Eases the KYC headaches many have been facing in relation to electronic-based safe harbour provisions and the requirement to verify both name, address and date of birth (or transaction history) against two separate data sources.
Broadening of customer identification information collection methods
The Rules set out the minimum requirements in relation to customer identification and verification.
Historically, Chapter 4 of the Rules required reporting entities to collect KYC information directly “from” a customer. During the consultation period for the June 2014 Rules amendments, it was made clear that this requirement was regarded as burdensome by the industry. It was submitted that there would be regulatory advantages and savings if the ability to collect KYC information was broadened.
The Amendment means that the Rules now permit reporting entities to collect KYC information “about” a customer rather than “from” a customer. This wording change has been applied universally across Chapter 4 (meaning you can collect information “about” each customer type).
From a practical perspective, this change means that reporting entities can choose whether to collect information “from” a customer or “about” a customer (i.e. from a source other than the customer). Reporting entities have greater flexibility and discretion as a result of the Amendment. Reporting entities must ensure that they still apply a risk-based approach to the development of any new procedures and that they still adhere with the remainder of the Chapter 4 requirements and privacy law requirements.
In the explanatory memorandum for the Amendment, the Government noted that financial institutions estimate that this change will reduce manual data entry time by around 4 minutes per customer and will reduce the time it takes the average new customer to complete an application form by around 12.5 minutes (representing an estimated annual saving of $7.2 million to financial institutions and $7.9 million to individual customers).
This change will also prove a relief for KYC headaches associated with having information about a customer that is reliable, but that did not come “from” the customer – a problem many of our clients have been facing.
Electronic-based safe harbour provisions
Prior to the Amendment, electronic-based safe harbour provisions for the verification of individual customers required reporting entities to verify:
- the customer’s name and residential address agains two septerate data sources; and
- either the customer’s date of birth or that the customer has a transaction history for at least the past three years against two separate data sources.
The Amendment has changed this requirement. Now electronic-based safe harbour provisions for the verification of individual customers require reporting entities to verify:
- the customer’s name against two separate data sources; and
- either the customer’s residential address, or date of birth or that the customer has a transaction history for at least the past three years against two separate data sources.
This change will be a relief to those in the industry constantly coming up against reliable data sources that only verify against name and date of birth (but not address) or vice versa.
Conclusion and next steps
It is important for reporting entities to continue to apply the risk based approach to any procedural changes they make as a result of the Amendment.
If you are uncertain about the effect of the Amendment, would like assistance updating your Compliance Program to incorporate the benefits resulting from the Amendment, or would otherwise like to contact us, please do not hesitate to get in touch with a member of our team.
Click here to view the Amendment.