Australia: The 100-Point Check Is No More!

Last Updated: 19 December 2006

The Anti-Money Laundering/Counter Terrorist Financing (AML/CTF) Act (the Act) became law on 12 December 2006.

This report focuses on the impact of the Act on the mortgage industry.

Executive Summary

There is no immediate change for brokers, aggregators, or mortgage managers.

By December 2007, lenders (that is, all lenders and not just predominantly ADIs as at present) must adopt an AML/CTF Program, and a 'risk based' customer identification regime.

It is hoped that lenders will broadly adopt common customer identification regimes, and so, there may be little change for brokers, aggregators, and mortgage managers. Ernst and Young have been retained by the Mortgage Industry Association of Australia (MIAA) to develop a standard training package for intermediaries, which hopefully will provide one stop accreditation with lenders (like the MIAA UCCC Compliance Course).

Lenders and program/trust/securitisation managers who manage lending programs need to start developing their AML/CTF Program. Those affected should contact gadens lawyers now to register for supply of this program.

Further Details

Most relevantly for the mortgage industry, the new Act requires all lenders to establish an AML/CTF program and comply with 'know your customer' procedures. The Act also heralds the end of the 100-point check system of customer identification which has been used in Australia since the introduction of the Financial Transactions Reports Act in 1988. Instead, the Act contemplates a 'risk based approach' to customer identification and on-going customer due diligence.

So What Does This Mean for The Mortgage Industry?

Firstly – don't panic! Although the Act has commenced, not all provisions take effect immediately. There is a staggered commencement of the provisions of the Act over the next 24 months. Although there are immediate record-keeping requirements on reporting entities, the major provisions affecting the mortgage industry do not start for at least six months.

Secondly – don't panic! Most details of what is required in order to comply with the Act are to be contained in the AML/CTF Rules. AUSTRAC is currently drafting revised rules and has indicated that the revised rules will be available no later than 31 March 2007.

Thirdly – don't panic! The government has indicated that following the commencement of each stage of the Act over the next 24 months there will be a 15 month prosecution fee period – provided the reporting entity is making reasonable attempts to comply with the Act. However, reporting entities which ignore the Act will not be able to rely on the moratorium on enforcement.

Who Must Comply With The Act?

Under the new Act, all financial institutions which provide a designated service are reporting entities. The Act prescribes some 54 designated financial services including:

(a) making a loan, where the loan is made in the course of carrying on a loans business; and

(b) in the capacity of lender for a loan (or assignee of a lender), allowing the borrower to conduct a transaction in relation to the loan, where the loan was made in the course of carrying on a loans business.

Therefore, all lenders, both those making unregulated commercial loans and those making loans regulated by the UCCC, are now reporting entities and must comply with the Act. Lenders (and in the mortgage trust/securitisation world, program managers) need to start working now to develop their AML/CTF Program.

If you are affected, contact Vicki Grey at gadens lawyers now to register for our service. Mortgage brokers, aggregators, and managers do not 'make a loan' and as they are not "lenders", are not directly subject to the Act.

What Obligations do Lenders Have Under The Act?

As lenders are reporting entities providing a designated service, the Act requires lenders to:

(a) develop, maintain and comply with an AML/CTF program

(b) undertake customer identification (reporting entities may appoint 'agents' (ie brokers and aggregators) to assist with this)

(c) undertake on-going customer due diligence and keep records

(d) provide periodic reports to the regulator, AUSTRAC, including:

(i) reports on suspicious transactions

(ii) reports on threshold transactions; and

(iii) compliance reports.

When do the Provisions of The Act Have to be Complied With?

1. Some provisions apply from 13 December 2006. These provisions include:

(a) record keeping, including the requirement to:

(i) keep any records made of information relating to the provision of a designated service to a customer for at least seven years after the making of the record; and

(ii) keep records of documents provided to the reporting entity by customers for at least seven years after the document was given to the reporting entity.

(b) provisions relating to secrecy, enforcement, administration and the role of AUSTRAC.

Lenders must ensure that they comply with these record-keeping obligations immediately.

There are also a number of other provisions which took effect which do not directly affect the mortgage industry.

2. Other provisions of the AML/CTF Act which affect lenders will commence in June 2007.

These provisions include the requirement that all reporting entities lodge a periodic compliance report with AUSTRAC detailing their compliance with the Act, the regulations and the AML/CTF Rules. The AML/CTF Rules will specify what the relevant reporting period is for the purposes of this section.

3. From December 2007 lenders must have in place::

(a) new procedures for the identification of customers; and

(b) an AML/CTF Program.

The reporting entity's AML/CTF Program must specify:

(a) the customer identification procedures adopted by the reporting entity; and

(b) the on-going due diligence to be undertaken by the reporting entity to identify, mitigate, and manage the risk of facilitation of money laundering or counter-terrorist financing.

At that time, the existing 100-point check customer identification will be replaced with a new 'risk-based approach to customer identification'. Some guidance, as to the minimum standards to be met, will be provided in the rules once they are released. We are yet to see how much change if any this will mean.

Clearly, the mortgage broking model will not work if each lender adopts a different 'risk based approach' to customer identification. It is imperative that an industry standard be drafted in consultation with lenders, mortgage managers, aggregators and brokers.

4. The final parts of the AML/CTF Act will commence in 24 months in December 2008. These provisions include:

(a) the requirement that reporting entities undertake on-going due diligence; and

(b) the requirement that reporting entities provide reports on the following to AUSTRAC:

(i) suspicious transactions; and

(ii) threshold transactions.

Where to Now?

If you are a lender or manager of a lending program, e-mail Vicki Grey now to register for our Lenders AML/CTF Compliance Service. In doing so, you will be assured of a cost effective AML/CTF solution to ensure your business complies with this important new law.
By Vicki Grey


Jon Denovan

t (02) 9931 4927


Vicki Grey

t (02) 9931 4753



Danny Moore

t (03) 9617 8596


Peter Grotjan

t (03) 9617 8538


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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