Advisers still unfairly carrying AML/CTF costs for product providers

Mike Taylor

Managing Editor/Publisher, Financial Newswire

1 July 2025

Financial advisers and licensees are still at risk of picking up the cost of Customer Due Diligence and Know Your Client (KYC) obligations for product manufacturers under AUSTRAC’s revised anti-money laundering/counter terrorism financing regime.

The Financial Advice Association of Australia (FAAA) has expressed disappointment that AUSTAC has failed to pick up on changes which would ensure product manufacturers carried their fair share of costs with respect to Customer Due Diligence (CDD) aimed at identifying high risk customers..

In a submission to AUSTRAC, the FAAA said it was disappointed that AUSTRAC had not taken the opportunity to “improve the equity, cost, efficiency and AML/CTF outcomes of reliance agreements”.

The FAAA acknowledged that AUSTRAC had explained its rationale, but said “in reality, the way in which reliance arrangements operate serves to transfer the costs associated with CDD obligations to the ‘first entity’.

“All the costs associated with collecting and verifying ID documentation and check PEP status, are passed on to AFSL holders (the large majority of whom are small businesses) and financial advisers,” the submission said.

“Due to the inherently higher risk of the nature, scope and complexity of the designated services provided by financial product providers, AFSL holders and financial advisers must also incur the cost of conducting any ongoing or enhanced CDD based on the higher risk assessment of the product provider, even if it is not warranted, based on the AFSL holder’s busine4ss risk or the AFSL holder’s assessment of the customers risk for the provision of item 54 designated services”.

“It is an inequitable system,” the FAAA said. “The reforms provide an opportunity to improve the efficiency and consistency of how reliance agreements operate to help some of the costs incurred by ‘other entity’.”

The FAAA submission made the point that under reliance arrangements, it is common practice for product providers to automatically request the AFSL/financial adviser to conduct enhanced CDD, rather than asking the AFSL/adviser about the transaction, or considering a source of wealth/source of funds check.

“Given the services financial advisers provide to their clients, they act as an additional gatekeeper for AML/CTF purposes,” it said.

“Advisers are privy to the reasons clients make what might appear to a product provider as an ‘unusual or large transaction’ and could assist the ‘first entity’ with identifying ML/TF risk in a manner that would avoid tipping off the client.”