LEADING BANKS have warned the Federal Government not to underestimate the operational impact of its anti-money laundering (AML) reforms or face serious issues in the future.
According to ANZ bank’s group general manager, compliance, Sean Hughes, the proposed draft Bill — which aims to bring Australia’s AML framework — which also covers counter terrorism financing (CTF) — in line with international best practice — will consume at least the same resources as the Financial Services Reform Act (FSR) and Basel II, the global banking accord on operational risk. At the time of writing, Senator Chris Ellison, Minister for Justice and Customs, had not announced how long impacted organisations will have to make the transition to the new framework, but is believed to favour one year.
Rumours suggested the outcome will be a two-year transition. However, that is not enough said Hughes.
“FSR required compliance within two years,” he wrote in the ANZ’s submission to Ellison. “This target was only reached after a number of key obligations … had been deferred by the Australian Securities and Investments Commission [ASIC]. In line with the Basel II Accord, the Australian Prudential Regulation Authority [APRA] allowed the industry a number of options for implementation and a three-year implementation period.”
For many banks globally, Basel II has been a massive project spanning, in many cases, a decade. “The obligations imposed by the Bill carry severe sanctions and requiring reporting entities to embark upon extensive process changes within short timeframes could cause significant disruption to our customers and operations.”
Macquarie Bank’s submission, signed by the firm’s head of risk management, compliance, Kevin O’Neill, said the AML reforms are more complex than FSR, which had a four-year transition period from the release of the draft Bill.
“The implementation of the AML Bill will require significantly more complex analysis given the broader range of designated services captured,” the submission said. “Macquarie is sensitive to the risk of repeating the experience of transitioning to the FSR regime where there were industry-wide issues with how to interpret the impact of some core FSR obligations leading up to the deadline for compliance in March 2004. The unintended consequences are still being progressively managed today with ASIC and industry, evidenced in part by ASIC’s release of the eight FSR refinement projects announced in May 2005 by ASIC to address industry concerns about the Act and its implementation.”
Macquarie added that a transition period “over a number of years” is not desirable, but critical.
Commonwealth Bank of Australia (CBA) is also lobbying for a three-year implementation period to the new laws. Any shorter and the reforms run the risk of rendering AML safeguards pointless, said its CEO Ralph Norris.
“Our bank has a customer base of around ten million,” he said in CBA’s submission. “Alterations to the systems facilitating such a scale of operations require extensive planning and implementation time frames. Consider also that there are a limited number of technical service providers that will be stretched by the surge in demand generated by the passage of the legislation. If insufficient time is provided for necessary changes to be implemented then major system blockages will occur rendering the AML/CTF safeguards inefficient, or worse, ineffective.
However, it’s not just the big banks balking at Ellison’s plans. Bendigo Bank also joined the debate, demanding a three-year transition in its submission. “BBL [Bendigo Bank Limited] joins with all other businesses that are affected by these proposed new laws in strongly requesting that the issue of the implementation period be clarified by government immediately,” the bank’s submission said.
“The Australian Bankers Association has consistently said that its members will need up to three years to implement these new laws. Further mobilising the resources required to implement the new laws, ahead of the passage of the bill in Parliament, is very challenging when business is not given the time frame that it will have to complete the work. A shorter implementation period will result in higher implementation and opportunity costs across the industry.”