AML Reforms Part 1: Remittance Service Providers
By: Daniel Knight and Kithmin Ranamukhaarachchi
The Australian Attorney-General’s Department (Department) has released five papers outlining proposals for extensive reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime.
This post is the first in a series of posts about these reforms. We start with proposals impacting remittance service providers, as outlined in Paper 4: Further information for digital currency exchange providers (DCEPs), remittance service providers and financial institutions (Paper 4) (see here).
The application of the definition of “designated remittance arrangement” under the AML/CTF regime has been the subject of uncertainty over the years. This is because the definition is extremely broad and could potentially capture remittance-like services that are provided incidentally to an entity’s core business. The Department recognises this and is seeking to narrow and clarify its application.
New Framework for Remittance Service Provider Regulation
The Department proposes to remove the definitions of “electronic funds transfer instruction” and “designated remittance arrangement” and replace those terms with a new streamlined concept of a “value transfer service.”
It is arguable whether this actually clarifies anything because the term “value” may also be broadly interpreted, thus resulting in the same uncertainty present in the current definition. The Department intends to address this by creating an exclusion for entities that provide value transfers services other than as part of their core business.
As currently proposed, however, the Department proposes to capture all entities that provide value transfer services as part of their core business, regardless of where they sit in the value transfer chain. This would include intermediary entities which do not have a direct relationship with payer or payee (however, such entities may be subject to a reduced compliance burden).
Alignment with Payment Reforms
Given the impending sweeping changes to regulating the payments industry, it may be useful for the concept of “value transfer services” under these proposals to be aligned with relevant “payment functions” that are being proposed in the Payments System Modernisation: Regulation of Payment Service Providers Paper by Treasury. In particular, Treasury seeks to create “payment functions” related to payment initiation services, payment facilitation services and cross-border transfer services. Specific interaction between the “payment functions” and the “value transfer chain” would support cohesive regulation in the space.
Reporting Obligations
The “travel rule” requires reporting entities to ensure that information about payers and payees travels with the transfer of value. In Australia, this has not yet been implemented in full. Paper 4 proposes to impose this requirement on reporting entities, which will require remittance service providers to also record payee details.