AUSTRAC non-bank lending and financing sector risk assessment

Austrac has released its money laundering and terrorism financing (ML/TF) risk assessment of Australia’s non-bank lending and financing sector, which shows a medium level of ML/TF risk to the sector.

For the purposes of the report, a non-bank lender and financier is a business that offers individuals and businesses loans, mortgages, personal finance, credit cards and other types of finance, but does not hold a banking license. They do not feature on the Australian Prudential Regulation Authority (APRA) list of authorised deposit-taking institutions as they do not accept deposits.

The main threat facing the sector is fraud, particularly loan application fraud, identity fraud and welfare fraud. Non-bank lenders and financiers are also a target for money laundering, relating predominantly to unexpected early loan payouts.

Austrac concludes that investigation of customers’ financial status to assess creditworthiness enabled the sector to identify welfare fraud and tax evasion.

Reluctance to lend to customers who may permanently leave the country before repaying the loan has lowered the sector’s foreign jurisdiction exposure.

Other risk mitigation strategies identified by Austrac during the development of the risk assessment in relation to a number of reporting entities include:
• restrictions on the extent of cash deposits to repay loans
• communication and collaboration between reporting entities, such as at AML/CTF industry forums
• communication and collaboration between the sector and government/law enforcement agencies
• provision of support to customers who appear to be victims of fraud
• conduct all due diligence and know your customer (KYC) processes, irrespective of whether the loan originated with a third party
• disbursing funds directly to the vendor of the vehicle being purchased, rather than to the borrower – this ensures the loan is used for the stated purpose
• audit of completed loan applications to maintain fraud and quality control standards
• collaboration with banks for the purpose of fraud detection
• strictly limiting the redraw facilities attached to some mortgages
• the use of software that enables read-only access to an applicant’s bank account and
the previous 90 days of their banking history as part of the loan approval process.

Austrac says two areas in which the sector’s risk mitigation systems and controls could be strengthened – outsourcing and SMR reporting.

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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