As delays for Tranche 2 reform continue on, banks are straining under the weight of increasing compliance costs and complications.

Banks and fintechs are eager to see the expanded anti-money laundering (AML) regime finally realised. Long awaited Tranche 2 reforms left banks shouldering a heavy burden for far too long and further delays could damage ‘Australia’s international standing and access to capital’, writes James Frost of AFR.com.

The expanded Tranche 2 AML/CTF regime, which has been in the wings for Australia for 14 years, would see ‘gatekeeper professions’ such as lawyers, accountants, and real estate agents added to the list of companies regulated by AUSTRAC, potentially increasing the number of organisations reporting to the regulator from 15,000 today, to over 115,000. 

The changes would bring Australia into line with global standards that have already been adopted by many other economies, and which are promoted by FATF to regulate services offered by ‘designated non-financial businesses and professions (DNFBPs)’.

But as the months and years tick by without conclusion on the Tranche 2 reforms, banks continue to shoulder the burden and cost of compliance. As a result, some Australian banks have withdrawn services from other jurisdictions and the country has seen a slow down in payments innovation, in order to minimise risk and reduce compliance costs.

Tao Corolis, chief risk officer of Bendigo and Adelaide Bank, shared his concerns over the high cost of the regime and the impact that further delays could have. 

“The current arrangements of not covering DNFBPs arguably have placed an additional burden on those parts of the financial system that are already captured by the regime and are working with AUSTRAC and law enforcement to address financial crime,” Mr Corolis said.

This sentiment was also captured in the Senate’s recent submission to the Reserve Bank, which highlights concerts about the “withdrawal of low-risk remittance services provided to countries in the South Pacific such as Fiji, Vanuatu, Samoa and Tonga”.

Cost to comply too high?

Several attempts to conclude the Tranche 2 reforms were already made but these have ultimately vacillated to a grinding halt. In part, due to the high cost of imposing regulations on Tranche 2 entities. 

Many of these entities are small businesses who lack sufficient financial resources to cover costly compliance requirements.

But as Mr Corolis said, not moving forward with the reform only shifts the responsibility to other parts of the financial system, causing those larger entities to bear the weight.

So will we see Tranche 2 reform realised in Australia, bringing us into line with international standards? The growing list of banks and fintechs getting behind the reform could help push the decision through parliament, but concerns from both small and large entities have left some wondering; is the cost to comply too high?

“The expanded Tranche 2 AML/CTF regime, which has been in the wings for Australia for 14 years, would see ‘gatekeeper professions’ such as lawyers, accountants, and real estate agents added to the list of companies regulated by AUSTRAC.”

Regardless of what happens, the need to prepare and plan ahead remains.

To read more about the Tranche 2 reform, visit fatf-gafi.org