Proposed reforms to Australia's AML/CTF regime: Simplifying the IFTI reporting regime

As part of the second stage of consultation on the proposed reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) laws, the Attorney-General's Department (AGD) has proposed a legislative overhaul of the international funds transfer instruction (IFTI) reporting regime. If the AGD moves forward with the proposed reforms, these changes could have a significant impact on remittance providers and financial institutions that are currently required to comply with the regime. Relevantly, if implemented, the IFTI reporting obligation will apply to the person with the relationship with the payer or payee (as opposed to the person that sends or receives the instruction across the border) and the types of international transfers captured by the IFTI reporting obligation will change. Of course, the devil will be in the detail and whether the proposed reforms achieve these desired outcomes will depend on the drafting of the reforms.

The IFTI reporting obligation is complex

The IFTI reporting regime's complexity, particularly in relation to modern payment services, has been a long-standing concern amongst remittance providers and financial institutions.

Currently, an entity will have an IFTI reporting obligation if it is the sender of an instruction to transfer funds out of Australia or it is the recipient of an instruction to transfer funds into Australia. Complexities can arise where there are multiple institutions interposed in a fund's transfer chain. Importantly, the person that holds the obligation to report an IFTI may not be the remittance provider or financial institution with the direct relationship with the customer.

While this obligation may seem straightforward on the surface, in practice, the complex definitions underlying what instructions are required to be reported, and by whom, impose difficulties for relevant entities in ensuring that they are complying with the obligation and are not over-reporting and/or under-reporting IFTIs. Notably, the failure to comply with the IFTI reporting obligation has been the subject of enforcement action by AUSTRAC (including both civil penalty proceedings, enforceable undertakings and infringement notices).¹

The consultation process to date

The first consultation paper on modernising Australia's AML/CTF laws released in April 2023 (Consultation Paper 1) considered a number of reforms, it did not address ways to streamline the current IFTI reporting regime.

The need to prioritise the simplification of the IFTI reporting regime was specifically raised by a number of industry participants in their feedback to Consultation Paper 1. This follows a number of discussions between industry participants and AUSTRAC in relation to the IFTI reporting regime, including draft IFTI guidance released by AUSTRAC for consultation in late 2021 (which has been socialised with some relevant entities but not yet finalised).

Responding to this feedback, the AGD included proposed reforms to the IFTI reporting regime in Paper 4: Further information for digital currency exchange providers (DCEPs), remittance service providers and financial institutions (Paper 4) which was published as part of the AGD's second stage of consultation on the proposed reforms to Australia’s AML/CTF laws.

The proposed reforms seek to simplify the IFTI reporting regime

What happens next

The AGD is currently reviewing all feedback on the second stage of consultation on the proposed reforms to Australia’s AML/CTF laws, and will conduct roundtable discussions with stakeholders as necessary.