During our regular ‘Ask Me Anything’ sessions, the entire Napier team is honoured to spend a virtual hour with a heavyweight in the world of AML, compliance or enforcement.
These sessions are a brilliant learning opportunity and provide us with first-hand experiences and insights into life on the front line of fighting financial crime. While much of what we talk about is sensitive, we’ve also been able to share many highlights from these sessions.
During July, we had the pleasure of speaking to Luke Raven: Senior Manager, AML Advisory and SME Financial Crime at Westpac. Westpac is Australia’s first bank and oldest company, one of four major banking organisations in Australia and one of the largest banks in New Zealand.
Luke got his start in financial crime prevention 12 years ago, when he began temping at one of Australia’s biggest banks as an after-hours fraud prevention specialist. Since then, he has been at various financial service providers, and has progressed through the ranks, moving from fraud prevention into monitoring, and eventually into AML.
Luke generously shared his extensive experience with us and here we delve into some of the key points he made:
Financial crime regulation in Australia
In Australia, there are a lot of regulators, and the financial crime prevention model is unique in a lot of ways.
In the UK, the FCA handles financial crime and consumer protection, whereas in Australia these are separated and handled by separate entities:
- ASIC (Australian Securities and Investments Commission) handles consumer protection
- APRA (Australian Prudential Regulation Authority) & RBA (Reserve Bank of Australia) look after the economy
- OAIC (Office of the Australian Information Commissioner) looks after consumer rights and privacy
- AUSTRAC (Australian Transaction Reports and Analysis Centre) supervises industry participants, ie. financial service providers and manages financial intelligence. AUSTRAC serves a dual function as both the FIU and regulator.
SMRs and financial intelligence
AUSTRAC is both the financial crime regulator and the financial intelligence unit in Australia, so the two responsibilities are combined. They supervise financial services and receive the reports of financial crime, which they process and pass onto relevant parties, such as law enforcement or the tax office.
A report must be submitted to AUSTRAC for:
- Every cross-border movement of funds, regardless of suspicion or not (data collection exercise)
- Cash transaction report, also known as a Threshold Transaction Report (TTR) for withdrawals or deposits of 10,000$ AUD or more in cash - even if this has been broken out into several smaller payments
Suspicious Matter Reports (SMRs), the Australian version of the UK Suspicious Activity Reports or the US Suspicious Transaction Reports (SARs/STRs), are mandated under Australian law and are much broader reaching in than in most other territories. If a financial service provider has knowledge of someone committing any crime – not just financial crime - they must submit this knowledge in the form of an SMR. SMRs are also unique because they don’t just apply to a financial institution’s customers, there is an obligation to submit an SMR about anyone that institution encounters, in any capacity – even if that’s only someone attempting to set up an account with suspicious details at their local bank branch.
This uniquely broad approach highlights the dedication in Australia to preventing and fighting financial crime and making sure that serious crimes like terrorist funding don’t go undetected.
In other respects, Australia is somewhat criticised by the international community in financial crime regulation as they are yet to enact Tranche 2, a policy change to regulate lawyers, accountants and real estate agents as DNFBP (Designated Non-Financial Business and Professions).
Australia is a wealthy country with high tax rates, so tax evasion and tax-based crimes are very common. It’s also a country with a high standard of living and residents generally enjoy a high amount of disposable income, so the demand for goods like recreational drugs drives up the rates of organised crime – which is why Australia’s regulatory regime is so gruelling.
What are the differences between FinTechs and traditional banks in Australia?
In Australia, the ‘big 4’ would refer to the top 4 banks, which is unique as in other countries it typically would refer to accounting firms.
Banks have dominated the industry historically, but are being challenged at present with the emergence of new players. Many banks are embracing digital innovation and offering Banking-as-a-service models to capitalise, especially in the wake of large enforcements and a Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which left FinTechs largely unscathed.
Startups in many ways have an advantage in that they can structure the company as it scales to accommodate the demands of regulations (e.g. not classifying themselves as credit lenders, which means they are not subject to regulations around being credit suppliers); whereas larger or older institutions may face challenges with scale and data lineage.
The best and worst things about being a compliance officer
The opportunity to make a real-world difference against key issues like child exploitation, wildlife trafficking, and terrorism. Luke credits law enforcement for the catching and prosecution of bad guys but explains that one of the best things about noticing suspicious financial activity is when it can be turned into actionable, useful intelligence for law enforcement to use in the fight against these crimes. He maintains that a good financial officer is motivated – especially when it comes to the harder parts of the job - by these real-world impacts of their work on the lives of others.
Compliance officers must deal with the occupational hazard of potentially being perceived as the ‘handbrake’ at their organisation – someone who is always saying no - which can have a negative impact on company culture more generally. Luke notes that really, the compliance officer is more of a check than a break, as their work allows for the company as a whole to operate and achieve their goals without accidentally getting into trouble or associating with ‘the bad guys’.
Why do Australia’s financial institutions struggle to fight financial crime?
Although reporting entities have worked hard in recent years to combat financial crime and catch up with regulatory compliance requirements, there are still breaches because of:
- Legacy systems causing a lack of data lineage: “data lineage is everything”
- The overwhelming complexity of Australia’s regulations makes it hard for businesses to keep up with them
- A lack of future vision or desire to be ‘industry best’ within businesses regarding their AML compliance
- AUSTRAC could be engaging more with businesses and keeping the regulations up to date, to better assist businesses to keep up with regulations
Many thanks to Luke for sharing your insights and experience with the team!
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