AUSTRAC ramping up supervision presence as Budget increases bite

The Australian anti-money laundering regulator is ramping up its supervisory presence and preparing to use a broader array of its enforcement powers, the Australian Regulatory Summit heard this morning. 

Speakers from the Australian Transaction Reports and Analysis Centre (AUSTRAC) told Refinitiv's annual risk and compliance event in Sydney there was a "clear trend" for more oversight from the agency's regulatory arm. This was being strongly supported at all levels of the organisation, from the chief executive downward.

In the latest Budget AUSTRAC received funding for an additional 35 full-time staff. The majority of these new hires are understood to be earmarked for the supervision and enforcement teams. 

"At the same time, AUSTRAC views reporting entities as its partners, so we want to support them to be compliant," said Nathan Newman, national manager of regulatory operations at AUSTRAC.

Peter Soros, deputy chief executive of AUSTRAC, said during a keynote address that AUSTRAC's recent "high profile enforcement activity" has had a positive impact on industry behaviour. 

"It has raised awareness by the financial sector of the importance of accurate and complete reporting, resulting in a 70% increase in suspicious matter reporting to fight financial crime," Soros said.

Shifting sands on tech landscape 

AUSTRAC officials told the summit that a changing technology landscape was posing both risks and opportunities for AML/CTF teams.

"New financial technology services methods and payment models are bringing innovative opportunities for Australian consumers and businesses. But new methods come with new challenges and heightened ML/TF risk to businesses and our community," Soros said.

To support reporting entities AUSTRAC will increase its communication and dialogue with the sectors it regulates. This will include offering more feedback on the value and use of financial intelligence reports. 

"AUSTRAC has listened to industry feedback and will be investing in and accelerating its communication and education initiatives and programs for industry and its enforcement partners," Soros said.

"AUSTRAC is adopting new technology solutions to automate data analysis to assist industry and provide real-time feedback. This is allowing AUSTRAC to respond faster to compliance issues to protect Australia's financial system."

At the same time, AUSTRAC will be simplifying its regulatory framework to make it easier for businesses to meet their obligations.

"Open and honest" 

The summit heard during a breakfast briefing that reporting entities need to be aware that enforcement activity can happen to any organisation that ignores its responsibilities. Even well-run or high-profile reporting entities can find themselves on the wrong side of an enforcement visit if they neglect their obligations.

Armina Antoniou, general manager of financial crime risk at Tabcorp, said her organisation had found during its enforcement action in 2016 that it was essential to be honest and upfront with the regulator. She said that a regulatory notice should be taken extremely seriously and treated as an opportunity to prevent matters from escalating.

"I would take advantage of the window of opportunity you've been given," Antoniou said. "Get your skates on and fix it."

Another crucial lesson Tabcorp learned is to ensure that the regulator is not misled at any stage of a regulatory investigation. Antoniou said it was critical that board minutes reflect what a reporting entity is telling the AML/CTF regulator.

"Be 1,000% truthful. There's nothing worse than entities sugar coating the truth," she said. "When they find out that you have sugar coated the truth, that will be worse."

Newman also stressed the importance of that open and honest relationship with the regulator.

"There's nothing worse than when you're told one thing and then you find out another," he said. "It is far better to engage early and engage often and tell us up-front if there are problems. You can never guarantee that will not lead to some type of action — compliance or enforcement — but certainly that approach is better."

Board engagement 

At any stage of an AML supervisory or enforcement action, delegates heard it is crucial to keep the board updated. This ensures that the entire organisation is focused on managing the problem as well as maintaining a paper trail for the regulator.

"It's really important that you keep your board updated. In our experience this was something that AUSTRAC was very interested in. It wanted to see the board minutes where we had told the board there was a problem," Antoniou said.

This two-way communication is also fundamental to ensuring that the board is going to support the business with any changes or investments that need to be made.

Full suite of tools 

Over the past 12-18 months, AUSTRAC has been doing a lot of internal work to develop a comprehensive strategy to target the use of its full suite of powers. This has been supported at all levels of the organisation.

"We've been looking at this internally to see how we use those tools ... we have been doing a lot of work to mature our approach to regulation," Newman told the summit. "So there are a range of tools that are available to us."

AUSTRAC is also looking to become more nuanced with its use of enforcement powers. This includes using everything from civil penalties through to infringement notices and enforceable undertakings (EUs). The tools that AUSTRAC uses will vary depending on the outcome it is trying to achieve.

AUSTRAC is also understood to be looking more closely at its ability to appoint external auditors. It is using the annual compliance reports as a mechanism to uncover organisations that have issues. An example might be if a reporting entity reveals in its annual report that the same organisation that wrote its AML/CTF program also did the audit.

"When we use this you must appoint, at your own cost, an external auditor to come into your business and audit compliance with the legislation," Newman said. "That allows us to have someone come in and independently review the business."

Reporting entities have been urged to pay a lot of attention to their compliance reports in this climate. Newman said this was a critical channel to allow AUSTRAC to identify outliers and pockets of the industry where more proactive supervision is needed.

"The compliance report is a very important source of information for AUSTRAC. That's why we take it so seriously," he said. 

"It helps us to understand where we need to apply our resources. Without that information it's difficult to ensure we are providing education materials to the right sectors."

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