Proposed reforms to Australia's AML/CTF regime: Simplifying the IFTI reporting regime

Current requirement under the IFTI reporting regime

Proposed reform

What this may mean for your business

The IFTI reporting obligation applies to the 'sender' and 'receiver' of the relevant instruction on a 'first in, and last out' basis.

Paper 4 proposes to shift the IFTI reporting obligation from the ‘last out’ institution (or ‘sender’) to the ordering institution, and from the ‘first in’ institution (or ‘receiver’) to the beneficiary institution. That is, in each case the obligation will apply to the institution with the closest relationship with the payer or payee.

Consequently, determining whether a person has an IFTI reporting obligation will be simplified as it will apply to the person that contracts with the customer to send or receive a payment, and will not be focussed on the person that stands at the border.

You will need to consider whether your business now has an IFTI reporting obligation, or no longer has an IFTI reporting obligation.

In addition to considering whether the business has (or no longer has) an IFTI reporting obligation, the AML/CTF Program should be reviewed to ensure that appropriate processes, systems and controls are in place for the business to meet its regulatory obligations.

For small businesses that rely on correspondent banks or remittance network providers to report on their behalf, it is important to note that the small business would still be responsible for any non-compliance with respect to reporting IFTIs. As such, small businesses should exercise appropriate due diligence accordingly when relying on third parties to fulfil AML/CTF obligations.

The IFTI reporting obligation is triggered where an 'instruction' is sent or received, whether or not the instruction is given effect.

Paper 4 proposes to shift the trigger for the IFTI reporting from sending or receiving an 'instruction' to when value is sent. This means:

• for outgoing IFTIs, the ordering institution’s reporting obligation would be triggered by initiating the transfer of value; and
• for incoming IFTIs, the beneficiary institution’s reporting obligation would be triggered by making the transferred value available to the payee.

Your business will no longer need to file an IFTI report where the transaction has been aborted, cancelled or declined.

IFTI-Es and IFTI-DRAs require reporting of different information and in different formats.

Paper 4 proposes to remove the distinction between the IFTI-E and IFTI-DRA reports and merge them into a single report format.

You will need to monitor the specific content and format changes to the IFTI reports.

In addition to monitoring the specific content and format changes to the IFTI reports, entities should ensure that their IFTI reporting processes, procedures and systems are modified appropriately to ensure that the information fields within the new IFTI report format are populated accurately. Rigorous system testing should be performed prior to implementation.

The obligation to report IFTIs only extends to transfers of money, not digital assets.

Paper 4 proposes to extend the IFTI reporting obligation to the transfer of digital assets. A financial institution or digital asset service provider that transfers digital assets to, or receives them from, a counterparty based overseas on behalf of a customer will be required to file an IFTI report.

If your business is a digital asset service provider, you will need to consider whether your business has an IFTI reporting obligation and implement a robust IFTI reporting framework accordingly.

The definition of a ‘designated remittance arrangement’ is broad and captures arrangements for transferring money or property where the transfer of money is incidental to the provision of another service (such as a foreign currency conversion service or a gambling service).

Paper 4 proposes to narrow the application of the AML/CTF laws so that they will not apply to businesses that don't provide remittance services as part of their core business. However, the proposed reform provides that IFTI obligations will be triggered where a provider of a foreign currency conversion service or a gambling service either:

• transfers, or arranges to transfer value, out of Australia on behalf of the payer; or
• makes available, or arranges with the payee to make available, value transferred into or out of Australia to a payee.

If your business provides a foreign currency conversion service or a gambling service, you will need to consider whether your business has an IFTI reporting obligation and implement a robust IFTI reporting framework accordingly.