Delayed KYC for new clients? AUSTRAC Releases Proposed Amendments to the AML/CTF Rules

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AUSTRAC has released proposed amendments to Chapter 46 of the AML/CTF Rules, which sets out special circumstances for KYC to be conducted after commencing to provide a designated service. If implemented, it will be a significant expansion on the existing provisions which only allow for securities, derivatives or foreign exchange transactions that occur on a prescribed financial market to have KYC undertaken after opening the account.

What changes are proposed?

KYC can occur after an initial deposit is made to an account:

The proposed amendments allows a Reporting Entity to carry out the KYC in respect of a customer after opening an account provided no transactions, other than an initial deposit, are conducted in relation to the account. However, section 34 of the AML/CTF Act prohibits Reporting Entities from providing any further services to the customer until the KYC is completed, with the exception of closing the account and remitting funds back to the customer or to the Commonwealth as unclaimed monies.

General conditions of the proposed KYC delay exemption:

The proposed amendments include two new general conditions that must be satisfied before relying on section 33 of the AML/CTF Act to allow the Reporting Entity to carry out the KYC after commencing to provide designated services to a customer.

To rely on section 33, a Reporting Entity must:

  1. make a determination that carrying out KYC in respect of a customer after commencing to provide a designated service is essential to avoid interrupting the ordinary course of business; and
  2. implement appropriate risk management procedures and controls to effectively manage the money laundering and terrorism financing (ML/TF) risks associated with providing designated services to a customer that has not completed the KYC.

It is an objective test as to whether it is essential to avoid interrupting the ordinary course of business, and the determination must be made on reasonable grounds, relying on objectively ascertainable facts to support the determination.

The appropriate risk management procedures and controls are not prescribed but are to be determined by the Reporting Entity based on the ML/TF risks posed by the customer.

Next steps?

If utilising this exemption in your business is of interest, we suggest you start preparing the documentation required under the proposed chapter 46.  You should also review what changes are required to your operational and compliance processes in order to roll out the deposit-only pre KYC option. This will help you be ready to go when the changes are released (provided AUSTRAC doesn’t make further changes to their proposal).

Further reading

Contact information

If you have any questions about the proposed AML/CTF Rules and how these will affect you, please contact us.

About The Author

Sophie Gerber

Sophie is the director of both Sophie Grace Legal Pty Ltd and Sophie Grace Pty Ltd. Sophie has worked with some of Australia’s largest financial services organisations in compliance, legal and operational roles. She has also worked with small businesses to provide tailored solutions with a strong understanding of business practicalities as well as obligations to regulators.

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