AUSTRAC has released proposed amendments to Chapter 46 of the AML/CTF Rules (Applicable customer identification procedure – special circumstances) for public consultation. The proposed amendments create a simpler, less prescriptive chapter.

The proposed amendments include two new general conditions that must be satisfied before a reporting entity can rely on section 33 of the AML/CTF Act which allows a reporting entity to carry out the applicable customer identification procedure in respect of a customer after commencing to provide a designated service, rather than before as required by section 32.

Also included is an additional special circumstance that allows a reporting entity to carry out the applicable customer identification procedure in respect of a customer after opening an account, provided no transactions – other than an initial deposit – are conducted in relation to the account.

New section 33 general conditions
The proposed amendments to Chapter 46 include the insertion of two new general conditions that must be satisfied before a reporting entity can rely on section 33.

These conditions require a reporting entity to:
a. make a determination that carrying out the applicable customer identification procedure in respect of a customer after commencing to provide a designated service is essential to avoid interrupting the ordinary course of business; and
b. implement appropriate risk management procedures and controls to effectively manage the ML/TF risks associated with providing designated services to a customer that has not completed the applicable customer identification procedure.

The determination that providing a designated service is essential to avoid interrupting the ordinary course of business must be made on reasonable grounds. This is an objective test, meaning the reporting entity must be able to point to objectively ascertainable facts to support the determination.

The provisions do not prescribe particular risk management procedures and controls, as these must be determined by each reporting entity having regard to the money laundering and terrorism financing risks posed by each individual customer.

Specified services and conditions—opening and allowing an initial transaction to be conducted on an account
This proposed amendment adds an additional special circumstance that allows a reporting entity to carry out the applicable customer identification procedure in respect of a customer (including any person purporting to act on behalf of the customer and any beneficial owner of the customer) after opening an account, provided no transactions – other than an initial deposit – are conducted in relation to the account.

The prohibition on conducting a transaction other than an initial deposit is made under section 34 of the AML/CTF Act. That section allows the AML/CTF Rules to specify a period within which a reporting entity must carry out the applicable customer identification procedure. If the applicable customer identification procedure is not completed within that period, then the reporting entity must not commence or continue to provide any designated services until such time as the applicable customer identification procedure is completed.

In accordance with paragraph 34(4)(a) of the AML/CTF Act, the period commences at the time when the reporting entity commences to provide the designated service (i.e. providing a designated service of the kind described in item 1 of table 1 in section 6 of the AML/CTF Act – opening an account).

In accordance with paragraph 34(4)(b) of the AML/CTF Act, the period ends on the occurrence of a specified event (i.e. allowing an initial deposit to be made into the account).

The effect of this is that a reporting entity will be prohibited from providing any further designated services to a customer following receipt of the initial deposit until the applicable customer identification procedure is completed.

Neither the closure of a customer account (e.g. in circumstances where ACIP cannot be completed) nor the remittance of funds (either to the customer or to the Commonwealth as unclaimed monies under section 69 of the Banking Act 1959) are considered to be designated services, and the prohibition in section 34 does not apply. However, reporting entities should consider whether the closure of an account in these circumstances would give rise to a suspicious matter reporting obligation under section 41 of the AML/CTF Act.

Specified services and conditions – securities transactions on a domestic stock exchange
This proposed amendment simplifies the existing provisions that apply to securities, derivatives, or foreign exchange transactions that occur on a prescribed financial market, by removing overly prescriptive risk-factors and redundant definitions clauses. The proposed changes are not intended to alter the nature or scope of the current provisions.

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