Australian government broadens KYC methods

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On 11 September 2016, the Australian government introduced the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2016 (No. 1), which makes important changes to chapter 4 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1).

kyc_packageThe amendment:

1. Allows reporting entities to now collect know your customer (KYC) information “about” a customer, rather than requiring KYC information to be collected “from” a customer; and

2. Eases the KYC headaches many have been facing in relation to electronic-based safe harbour provisions and the requirement to verify name, address and date of birth (or transaction history) against two separate data sources.

Broadening ID verification

The rules set out the minimum requirements in relation to customer identification and verification. Historically, chapter 4 of the rules required reporting entities to collect KYC information directly “from” a customer. The amendment means that the rules now permit reporting entities to collect KYC information “about” a customer rather than “from” a customer. This wording change has been applied universally across chapter 4 (meaning you can collect information “about” each customer type).

From a practical perspective, this change means that reporting entities can choose whether to collect information “from” a customer or “about” a customer (i.e., from a source other than the customer). Reporting entities have greater flexibility and discretion as a result. Reporting entities must ensure that they still apply a risk-based approach to the development of any new procedures, and that they still adhere with the remainder of the chapter 4 requirements and privacy law requirements.

The government noted that financial institutions estimate this change will reduce manual data entry time by about four minutes per customer and will reduce the time it takes the average new customer to complete an application form by about 12.5 minutes (representing an estimated annual saving of US$7.2 million to financial institutions and US$7.9 million to individual customers).

This change will also prove a relief for KYC headaches associated with having information about a customer that is reliable, but that did not come “from” the customer.

australian-government-broadens-kyc-methodsSafe harbour provisions

Following the amendment, electronic-based safe harbour provisions for the verification of individual customers require reporting entities to verify:

  • The customer’s name against two separate data sources; and
  • Either the customer’s residential address, or date of birth, or that the customer has a transaction history for at least the past three years against two separate data sources.

The change is a relief for those in the industry who constantly come up against reliable data sources that only verify against name and date of birth (but not address) or vice-versa.