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This update has been prepared in consultation with NIBA’s lawyer Mark Radford of Blake Dawson. It is provided by way of general guidance only and is not legal advice and should not be relied on as such. Each member must seek appropriate professional advice on compliance with this legislation relevant to their business needs.
PURPOSE OF THIS UPDATE
The purpose of this update is to consolidate the information provided by NIBA to date on the Act and its impact on members, explain where the AUSTRAC relief process is up to and inform members what NIBA is proposing to do to assist in relation to compliance with the new legislation. The information distributed to some insurance brokers in certain cases by others has unfortunately not been entirely accurate and has caused some confusion.
IMPACT OF THE ACT ON INSURANCE BROKERS
Persons who provide a "designated service" and meet the jurisdictional tests under the Act are caught. Section 6 of the Act sets out a comprehensive list of "designated services" to which the Act applies, all of which are activity rather than specific industry based.
The services of issuing, arranging and advising on general and life risk insurance are not caught. The issuing and arrangement of certain life investment products is caught.
For traditional general insurance brokers, member feedback indicates that it is their premium funding activities which are likely to bring them within the operation of the Act and this is the area that NIBA has focussed its resources on.
Premium Funders (ie those that directly provide premium funding services), are caught under Item 6 of Table 1 because they make a loan and under Item 7 because of the receipt of repayments in relation to that loan.
An exemption application for premium funding services was submitted to AUSTRAC by the Insurance Premium Finance Association of Australia (ipfaa) and was supported by NIBA. Unfortunately this was refused by AUSTRAC. ipfaa has lodged an abridged application seeking to have lesser obligations imposed in relation to premium funding. They are waiting on a response.
Insurance brokers that don't directly provide premium funding services themselves but act as intermediaries, may be affected simply because they hold an Australian Financial Services Licence (AFSL). Item 54 of Table 1 states that the following activity constitutes the provision of a designated service:
"in the capacity of holder of an Australian financial services licence, making arrangements for a person to receive a designated service (other than a service covered by this item)"
AUSTRAC issued a draft guidance note in late 2007 on Item 54, which if finalised in its current form, will affect insurance brokers holding an AFSL as follows:
(a)if they are arranging a product or providing a service that is BOTH a financial service covered by their AFSL and a designated service covered under the AML Act (e.g arranging a life investment product) they will be caught by Item 54;
(b)if they are arranging a product or providing a service that is a financial service covered by their AFSL (e.g a general insurance product) and in connection with that activity also arrange for a separate designated service (e.g premium funding) they will be caught by Item 54 (See paragraphs 4.1 and 4.6 of the draft note). There is doubt as to what is a sufficient "connection". See NIBA’s view below.
(c)if they make a mere referral to a designated service provider or provide an advice only service, they will not be caught by Item 54; and
(d)it would appear that a stand alone request by a customer for an insurance broker to arrange premium funding where no financial service is provided by a broker in relation to the insurance being acquired by the client will not be caught.
NIBA is of the view that the position taken by AUSTRAC in (b) above is an incorrect interpretation of the scope of the wording of Item 54, and has clear anti-competitive effects, amongst other things.
It is NIBA's view that for Item 54 to apply, the AFSL holder must be arranging for the relevant person to receive a financial service (within the meaning of section 766A of the Corporations Act) that is also a designated service.
NIBA has made a submission to AUSTRAC on the draft guidance note to this effect. NIBA has been advised that AUSTRAC will be finalising its position on the operation of item 54 in the form of a public legal interpretation (PLI) publication (rather than in the form of a guidance note). The PLI will be issued as soon as possible but no definite time frame has been given.
If NIBA is successful, insurance brokers would not have any obligations under the Act simply because they arranged premium funding. Premium funders, however, may practically need the assistance of insurance brokers that arrange premium funding on their behalf, to satisfy any obligation which the premium funder may have under the Act.
OBLIGATIONS OF NIBA MEMBERS CAUGHT BY ITEM 54
Members who only provide Item 54 designated services are exempt from some of the obligations under the Act that would otherwise apply. The table below to this update provides a summary of the obligations under the AML Act and which ones apply to Item 54 only reporting entities (see below for what assistance NIBA proposes to provide in relation to these obligations).
AUSTRAC has sent reminder notices to various NIBA members in relation to:
A NIBA member which only provides a designated service of the type covered in Item 54 (eg arranging for their customers to receive premium funding) was not required to:
If a person enrols a generic questionnaire must be completed which seeks to establish whether or not the person is a reporting entity. Once enrolled, the person is required to complete a more detailed questionnaire which identifies the individual designated services they provide.
Members that provide designated services other than or in addition to Item 54 designated services (eg provision of premium funding) had to submit a compliance report by the 31 March deadline and enrol with AUSTRAC online. In order to submit the compliance report to AUSTRAC via the internet (preferred to hard copy submission) Members should visit http://www.austrac.gov.au and enrol with AUSTRAC online.Once enrolled, the system features a gateway for the user to complete and submit their compliance report online.
How NIBA proposes to assist members
NIBA is proposing to provide the following assistance to members (assuming AUSTRAC does not change its view regarding Item 54 or in relation to the ipfaa amended application):
ATTACHMENT: Summary of obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)
|
Obligation/Part of the Act/Summary |
Applies to Item 54 only reporting entities |
Commencement |
|
Records of transactions Part 10, Division 1 and 2 ·If a reporting entity makes a record of information relating to the provision of a designated service to a customer the reporting entity must retain the record (or a copy or extract) for 7 years. ·If a customer of a reporting entity gives the reporting entity a document relating to the provision of a designated service, the reporting entity must retain the document for 7 years. |
Yes |
13 December 2006 |
|
Customer identification and verification Part 2, Divisions 1,2,3,4,5,and 7 ·A reporting entity must carry out a procedure to verify a customer’s identity before providing a designated service to the customer. However, in special cases, the procedure may be carried out after the provision of the designated service. ·Certain pre-commencement customers are subject to modified identification procedures. ·Certain low-risk services are subject to modified identification procedures. |
Yes |
12 December 2007 |
|
AML/CTF Program Part 7 ·A reporting entity must have and comply with an anti-money laundering and counter-terrorism financing program. ·An anti-money laundering and counter-terrorism financing program is divided into Part A (general) and Part B (customer identification). ·Part A of an anti-money laundering and counter-terrorism financing program is designed to identify, mitigate and manage the risk a reporting entity may reasonably face that the provision by the reporting entity of designated services at or through a permanent establishment of the entity in Australia might (whether inadvertently or otherwise) involve or facilitate: (a)money laundering; or (b)financing of terrorism. ·Part B of an anti-money laundering and counter-terrorism financing program sets out the applicable customer identification procedures for customers of the reporting entity. |
Yes (but only required to have Part B) |
12 December 2007 |
|
Compliance reports Part 3, Division 5 ·A reporting entity must give AML/CTF compliance reports to the AUSTRAC CEO. |
No (but encouraged by AUSTRAC to enrol with online reporting system for future reference |
12 June 2007 (first report must be submitted by 31 March 2008) |
|
Records of identification procedures Part 10, Division 3 ·A reporting entity must retain a record of an applicable customer identification procedure for 7 years after the end of the reporting entity’s relationship with the relevant customer. |
Yes |
12 December 2007 |
|
Records about AML/CTF programs Part 10, Division 5 ·A reporting entity must retain a copy of its AML/CTF program. |
Yes |
12 December 2007 |
|
Ongoing customer due diligence Part 2, Division 6 ·A reporting entity must carry out ongoing customer due diligence |
No |
12 December 2008 |
|
Reports on suspicious matters Part 3, Divisions 1 and 2 ·A reporting entity must give the AUSTRAC CEO reports about suspicious matters. |
Yes |
12 December 2008 |
|
Reports on threshold transactions Part 3, Division 3 ·If a reporting entity provides a designated service that involves a threshold transaction, the reporting entity must give the AUSTRAC CEO a report about the transaction. |
No |
12 December 2008 |
|
Providing information following reports on suspicious matters and threshold transactions Part 3 Division 6 ·A reporting entity may be requested to provide further information, produce documents or request information from other parties following reports on suspicious matters and threshold transactions. |
Yes (but only for suspicious matters) |
12 December 2008 |
Assumptions
In the preparation of this document we have assumed that members do not: