Welcome to The Ultimate Guide to KYC and AML Requirements for Australian Legal and Financial Businesses!
As a law firm or financial services business operating in Australia, it is essential to stay compliant with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. At Verify 365, we understand that navigating the complex and ever-changing landscape of KYC and AML regulations can be difficult, which is why we have decided to create this comprehensive guide looking at the latest regulations and some tips on staying compliant.
This guide will provide you with a clear understanding of the regulatory requirements, best practices, and tools that you need to implement effective KYC and AML processes for any Australian business.
We will cover everything from identifying and verifying clients to implementing risk-based assessments- this guide will cover all the key areas that Australian law firms need to consider. It is designed to be a valuable resource that you can refer to when you need to update your processes, train new staff, or looking to implement new technology.
By following the practical advice and guidelines outlined in this guide, you will be able to safeguard your firm from financial crime.
So let’s get into it and to begin with let’s look at what exactly is KYC and why is it required?
What is KYC?
KYC stands for “Know Your Customer or Client” and this is a process of verifying the identity of a client, customer or user. It used to be typically only done by banks and other financial institutions to identify people who are opening an account for compliance with government regulations about money laundering and terrorism financing.
Increasingly, with the global nature of trade and increasing risk of fraud – KYC practices in industries such as Law, Conveyancing, Real Estate, Crypto, E-Commerce, Gaming and E-Healthcare has evolved.
The KYC process usually involves collecting personal information such as date of birth, address, employment status, and past transactions by means of verification of identity documents, bank statements , source of funds and other such sources of personal information. However, verifying that information to be able to demonstrate that you have evidence to link proofs of identity to the client is a challenge which many law firms face in a digital world.
The solution to be able to verify clients in a seamless and undisputed manner is to have a biometric identity verification service provider complete those checks on your behalf. We will discuss this further in the guide.
KYC and AML Requirements for Australian Law Firms
In Australia, law firms are required to comply with both Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. These regulations are set by the Australian Transaction Reports and Analysis Centre (AUSTRAC) and are designed to prevent money laundering and the financing of terrorism.
KYC requirements for law firms in Australia include collecting and verifying the identity of clients and any beneficial owners of the firm. This includes collecting and verifying personal information such as name, date of birth, address, and government-issued identification.
AML requirements for law firms in Australia include implementing an AML programme, which should include risk assessments, customer due diligence, ongoing monitoring of transactions, and reporting suspicious activity to AUSTRAC.
Law firms are also required to appoint a compliance officer who is responsible for overseeing the firm’s compliance with AML regulations.
It’s important to note that these regulations are subject to change, and law firms should stay updated with the latest requirements set by AUSTRAC.
KYC and AML Requirements for Australian Financial Institutions
The Australian Transaction Reports and Analysis Centre (AUSTRAC) has recently introduced new KYC requirements to financial institutions in Australia. These requirements are aimed at improving the integrity and security of the banking system.
The new KYC requirements will require banks to identify their customers, assess their risk profiles and develop a tailored approach to managing that risk. They will also need to monitor customers’ transactions on an ongoing basis.
As businesses attempt to move services and solutions online they are faced with a great amount of risk in terms of cyber fraud. To manage such risk in most industries it is important to have processes that allow them to uniquely identify an individual to deter forged identities and have legal recourse in case of fraud.
The biggest cost to KYC is not just in the time required for completing the verification process and getting approved, but also in the cost associated with customer service. Businesses may have to hire new staff, train employees, or even implement a new company policy for customers who need help.
The biggest benefit of automated KYC is reducing customer onboarding time and friction. This means that businesses can get their customers through the sign-up process quickly and with less difficulty, which in turn reduces the chance of customer abandonment or fraud.
Types of KYC and AML Checks for Law Firms in Australia
AUSTRAC identifies some key considerations for businesses looking to undertake reliable and independent document verification.
Excerpt from AUSTRAC
To determine whether electronic data is reliable and independent you must consider whether the data is:
- kept up-to-date
- comprehensive (for example, how many listings are included in the data and the period over which it has been collected)
- verified from a reliable and independent source
- maintained by a government body under legislation
- able to be additionally authenticated.
Identity Verification Software Solutions for Law Firms in Australia
Using the latest AI-powered verification solutions it is possible to verify the identity of a government-issued identity document. This is analogous to being handed an identity document in person and verifying by yourself if the image on the document matches the person in front. Ensuring that the document does not look or feel fraudulent and/or is not expired.
Verify 365 – Digital Onboarding Technology is such a solution, in terms of being able to verify the following Australian identity documents:
- Australian Drivers Licence
- New South Wales
- Western Australia
- Christmas Island
- Cocos (Keeling) Islands
- Norfolk Island
- Northern Territory
- South Australia
- Australian passport
- Australian ID card
Additionally, the same process can be extended to over 10,000+ document types in over 100+ countries around the world.
Pricing for such plans is simple, affordable, and you can be started in minutes.
Here is the high-level process for a person undergoing verification:
- They receive an email and SMS containing their unique verification link
- Upon visiting the link, they receive instructions to download an app
- Following on-screen prompts, they will then verify themselves by taking a video and picture of their identity document (front and back) and a selfie, and the NFC chip scan on their ID document
Open Banking Source of Funds Checks in Australia
In Australia, Open Banking allows customers to securely share their banking data with authorised third parties, such as law firms. This can be used to verify the source of funds for clients in compliance with anti-money laundering (AML) regulations.
Here’s an example of how a law firm can use Open Banking to verify the source of funds:
1. The client provides their consent for the law firm to access their banking data through Open Banking.
2. The law firm uses an authorized third-party provider to access the client’s banking data, including transaction history and account balances.
3. The law firm reviews the client’s transaction history to determine the source of the funds. E.g. if the funds came from a salary or a legitimate business, it would be considered a low-risk source of funds.
4. If the law firm identifies any suspicious or unusual transactions, it must report them to the Australian Transaction Reports and Analysis Centre (AUSTRAC) as required by AML regulations.
5. The law firm can also use the data to confirm the client’s financial position and ensure that the client has the financial resources to pay for the legal services.
It’s important to note that Open Banking is a new system in Australia, and the use of the data is subject to compliance with privacy and data security laws.
Law firms should ensure they have the necessary consent and are using a compliant third-party provider before accessing customer’s banking data.
What are the PEPs and Sanctions Check Requirements for Law Firms in Australia
In Australia, law firms are required to comply with regulations related to identifying and assessing the risk of doing business with Politically Exposed Persons (PEPs) and individuals or entities on sanctions lists. These regulations are set by the Australian Transaction Reports and Analysis Centre (AUSTRAC) and are designed to prevent money laundering and the financing of terrorism.
Politically Exposed Persons (PEPs) are individuals who hold or have held high-level public functions such as Heads of State, Heads of Government, Senior Judiciary, and senior military officials. Law firms are required to identify and assess the risk of doing business with PEPs, and take appropriate measures to mitigate any identified risks.
Sanctions requirements for law firms in Australia include the obligation to check the names of clients and other parties involved in transactions against sanctions lists maintained by the Australian government and other relevant international bodies, such as the United Nations and the United States Office of Foreign Assets Control (OFAC).
If a match is found, the law firm must report the match to AUSTRAC and take appropriate measures to mitigate the risk of doing business with the individual or entity. This may include terminating the relationship or seeking a license from the government to continue the business relationship.
It’s important to note that these regulations are subject to change and law firms should stay updated with the latest requirements set by AUSTRAC.
If your looking for a KYC and AML solution that can help you verify clients, check out this blog How does Verify 365 client onboarding work?