The Association of Superannuation Funds of Australia (ASFA) and Financial Services Council (FSC) responded to a government consultation paper, outlining concerns related to the burden of document collection on reporting entities and whether compliance costs could be justified against the benefits of the enhancements.
ASFA and the FSC were both in favour of a risk-based approach which would exempt reporting entities with a low money laundering (ML) or terrorism finance (TF) risk, such as superannuation funds or managed fund services, from certain reporting requirements.
Stephen Judge, general counsel at the FSC, argued the superannuation and funds industry was highly regulated, with long-term investments and a low ML or TF risk and additional costs inflicted upon reporting entities could be reflected in the costs or fees of a product.
“A true risk-based approach would limit more costly measures to higher risk designated services and higher risk customers,” said Mr Judge.
Both groups opposed the proposal requiring reporting entities to ensure CDD information is continually updated, irrespective of risk, and suggested a risk-based system should be adopted here also.
Fiona Galbraith, director of ASFA, said using risk-based systems was more appropriate than an obligation to update information constantly, particularly in regard to superannuation where most fund members would be rated low risk.
“We believe the proposed requirement to keep CDD information regularly up to date would be overly onerous for superannuation trustees,” said Ms Galbraith.
“ASFA recommends that, while this may be appropriate for high-risk customers, following the risk-based approach the requirement to update and verify CDD information should only apply where there is a customer touch point or on the occurrence of specific ‘trigger events’,” she said.
The FSC argued that if this proposal is implemented, grandfathering arrangements for existing customers should be put in place to prevent the reporting entity having to contact the mass of existing customers simply to update previously collected documents. Mr Judge said that without grandfathering there could be customer confusion regarding why they are being contacted for customer information that has already been provided.
The Council also requested that any changes to CDD requirements should be subject to a transition period of around 24 months, depending on the nature of those changes.
“Any refinements to CDD requirements should be subject to an appropriate transition period to enable sufficient time to review and update documents, client on-boarding processes and procedures, IT systems and [to] undertake any necessary training,” said Mr Judge.
The FSC also highlighted that the consultation paper had identified, in the case of a deceased fund member, that the customer for the purposes of the payment of the death benefit was any individual who receives part of the entire death benefit. However, the FSC noted that there are many situations where the deceased member’s benefit is paid to a trust or a trustee company as opposed to an individual.
