Tranche 2: How Will it Affect Remittance Providers?

The Australian Government's latest reforms under the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime, known as Tranche 2, will introduce  changes that will directly impact remittance providers. These reforms aim to enhance the integrity and effectiveness of remittance services, ensuring they are robust against financial crimes. Here are the key updates:

Ensuring the Integrity of Remittance Providers

Fit-and-Proper Person Test

  • New Powers for AUSTRAC CEO: The AUSTRAC CEO now has the authority to prohibit individuals from participating in the management or operations of remittance service providers if deemed unsuitable. This change aligns the remittance sector with the financial services sector, where similar checks are standard under the Australian Financial Services License (AFSL) regime.
  • Criteria for Prohibition: Factors include the capability of the provider to comply with the AML/CTF Act and Rules, and the fitness and propriety of key personnel. This measure is essential to uphold the highest standards of integrity within the sector​​.

Streamlining Value Transfer Service Regulation

Updated Definitions and Services

  • Streamlined Concept: The reforms replace the definitions of ‘electronic funds transfer instruction’ and ‘designated remittance arrangement’ with a streamlined concept of a ‘value transfer service’. This applies to remittance providers and financial institutions that offer remittance-type services as part of their core business​​.
  • New Designated Services:
    • Ordering Institution: Accepting an instruction to transfer value on behalf of a payer, where the customer is the payer.
    • Beneficiary Institution: Making transferred value available to a payee, where the customer is the payee.
    • These services are intended to simplify the regulatory framework and close gaps in AUSTRAC’s financial intelligence capabilities​​.

Updates to the Travel Rule

Expanded Obligations

  • Inclusion of Remittance Providers: The travel rule, which mandates that information about the payer and payee accompanies a transfer of value, is now extended to remittance providers. This ensures transparency and aids in tracking illicit activities across fiat currency transactions​​.
  • Verification and Record-Keeping: Ordering institutions must verify payer details and keep records of travel rule information. All institutions involved must screen value transfer messages for missing information and take appropriate actions​​.

Reforms to International Funds Transfer Instruction (IFTI) Reports

Simplified Reporting Requirements

  • Unified Reporting Template: The distinction between IFTI-E (electronic) and IFTI-DRA (designated remittance arrangement) reports is abolished, consolidating them into a single IFTI report. This simplification aims to reduce complexity and improve the accuracy and completeness of financial intelligence reports​​.
  • Reporting Responsibility: The obligation to report IFTIs will rest with the Australian institution initiating the outgoing transaction or making the incoming payment available, ensuring those closest to the customer handle the reporting. This measure aims to enhance the accuracy and timeliness of reporting​​.

Consultation and Implementation

The reforms are subject to industry consultation to assess practical impacts and gather feedback for further refinement. Businesses will be given adequate time to adjust and comply with the new regulations, supported by guidance and resources from AUSTRAC​​.

The Tranche 2 is an improvement in regulating Australia's remittance sector. For detailed insights, you can refer to the comprehensive document  by AUSTRAC "Further Information for Digital Currency Exchange Providers, Remittance Service Providers, and Financial Institutions" from May 2024.

Written by
Emma Poposka
Certified AML/CTF Specialist

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