Are you on top of your AML obligations?

By Cindy Lau    August 26, 2019

AUSTRAC’s appointment of an external auditor to Afterpay Pty Ltd to examine its compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) is a reminder to all financial service providers, FinTechs in particular, of their compliance obligations and role in protecting Australia’s financial system from criminal activity.

What is Money Laundering?

Money laundering is one of the illegal business worldwide, that allows criminals to earn profit from crime. This includes – Smurfing, Bulk Cash Smugling, Cash-Intensive Business, Trade-Based Laundering, Round Tripping, Bank Capture, Casinos, Black Salaries, Transaction Laundering and Other Gambling.

Why is AML/CTF compliance a challenge with the growth of FinTechs?

FinTechs use technology to make financial services faster, more convenient, accessible, and cheaper for customers. While FinTech insurance services like crypto assets (e.g. cryptocurrencies), digital wallets and P2P platforms can create significant opportunities, they also bring new risks and challenges, specifically for regulators in regards to anti-money laundering and counter terrorism financing.

The growth in the range of financial innovations, the increased number of financial players, andanonymous execution of cross-border transactions,has challenged regulators in keeping up with the changing landscape and to continuously assess the adequacy of the regulatory framework.Some FinTechsmay fall outside the scope of banking regulation where AML/CTF rules have traditionally been focused. Consequently, regulatory gaps or loopholes providethe potential for financial crime activities.

What does this mean for directors of a FinTech company?

As the director of any company, you are have a duty to comply with the regulatory frameworks of ASIC, the Corporations Act and thestatutory bodies relevant to your industry.

If you are a director of a FinTech company, you need to consider if whether you might have AML/CTF obligations. As a FinTech startup, seek legal advice to determine whether you provide a ‘designated service’ under the AML/CTF Act, and if you are required to register with AUSTRAC as a reporting entity.

If you do have AML/CTF obligations, you need to have policies and procedures in place to identify, manage and mitigate the potential for criminals to launder money through your business.

What does this have to do with insurance?

It all boils down to carrying out your duties and compliance obligations as a director. The financial services industry is one of the most heavily regulated industries in Australia, so risk management and compliance should be a priority.

In the event of an alleged breach of duty or non-compliance you need resources to defend yourself. Hence the importance of a Directors & Officers (D&O) Liability policy in your risk management program.

An investigation into your compliance or alleged non-compliance with your AML/CTF obligations will incur significant legal costs and may result in fines & penalties. The sections of the AML/CTF Act that Afterpay are suspected to be in breach of carry a maximum penalty of $21 million each.It may also result in damage to your brand, loss of investors and potentially a class action (if you’re publicly listed).

It is vital to have the right cover under your D&O policy to ensure that your policy responds to such events tohelp you meet the legal costs and expenses and ultimately protect your balance sheet.

Speak to a Cindy Lau at CMX risk specialist about protecting your business with a D&O Liability policy.

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