The financial service sector is continuously evolving due to technological advancement. These dynamic financial firms leverage data sources with leading technology. And various banking services, such as payment processes, digital payments etc., are done in real-time. Meanwhile, it also allows criminals to exploit the sector by doing illegal activities. Research shows how one in four receives unappreciated messages in a sample population.
So, the high crimes and frauds have compelled the government and these firms to create a robust AML compliance system. And the article discusses the various AML program considerations which fintechs must comply with to minimise the chances of financial crimes.
Tips for Fintechs
Australia has thousands of banks and financial institutions which must comply with the AML/CFT rules under a legal framework. And the following tips will help to comply with these regulations on high priority:
AUSTRAC is primarily responsible for preventing financial crimes such as money laundering, financing terrorism, etc. It is a vital financial intelligence agency for regulating financial operations.
It ensures that all banks, financial institutions, and tech companies such as fintech comply with the country’s AML rules. And its work includes investigating transactions and imposing fines on institutions that breach legal regulations.
These rules come under the AML/ CTF Act of 2006, and it features a list of payroll services, currency exchange services etc. Institutions or firms giving these services are bound to register with AUSTRAC and comply with AML/CTF regulations.
There aren’t any specific regulations for fintech, and therefore must comply with the AML/CTF Act rules. Also, it must adhere to the licensing and limitations under the act.
Data privacy must be a priority for fintech. The government regulates on all levels; therefore, to avoid getting into legal trouble, it is wise to comply with regulations. So, the vital acts for data privacy include Federal Privacy Act(1988) and the Australian Privacy Principles(APP). These regulations apply to firms and institutions with a turnover of $3 million or over.
Fintech also comes under the Customer Data Right of 2019, as they give customers more control over their data.
Payment Sanction Screening
Fintechs are bound to comply with financial sanctions while the government and the UNSC lay these down. Meanwhile, the Department of Foreign Affairs and Trade has listed names and entities against which the firm must screen payments. These sanctions by the government apply to overseas citizens and entities and are limited to the country’s people and institutions.
The firms under the AML rules must monitor suspicious accounts for involvement in financial crimes. And the risk of these crimes should be considered while monitoring customers or businesses. Also, the firms under regulatory requirements should monitor accounts involving activities such as:
- Transactions with a large amount of money.
- Change in deposit behaviour, ex: a sudden transaction of a considerable amount.
- Overseas transactions involving high risk.
- Unusual transactions without any clear purpose.
Onboarding and Monitoring
Firms under the act should also monitor new customers, and customer due diligence should be done while onboarding. Identities of the new customers should also be verified thoroughly to understand the risk they present (if any) to the firm.
Close monitoring helps understand how a customer’s profile changes over time and the risk it brings. Additionally, the firm must monitor whether the customer is politically active as it increases the risk of money laundering.
Australia’s AML program requires administrative efforts on the firm’s part to carry out screening and monitoring processes. Moreover, the complex regulations may increase costs a bit, whereas not complying can welcome legal problems.