Adapting to global AML shifts: Insights for Australia's financial sector

The world of financial crime is evolving rapidly. From rising geopolitical risks and tightening sanctions to increasingly sophisticated efforts by crime syndicates to launder money, the threats facing financial institutions are both numerous and complex.

For Australian financial institutions, keeping pace with these global trends is essential. Local regulations, such as those enforced by AUSTRAC, are becoming more rigorous and increasingly aligned with international standards. The regulatory environment is intensifying, with stricter penalties for non-compliance and ever-changing definitions of what constitutes effective compliance. Institutions that can quickly adapt will inevitably fare better.

At the same time, customer expectations are transforming. Onboarding processes are expected to be entirely digital and seamless, regardless of a customer’s location. This shift adds pressure on compliance teams, who must balance the need for thoroughness with demands for speed. Internally, there are also pressures to shorten the time to revenue and enhance back-office efficiency, prompting many to embark on significant digital transformation projects.

This article delves into the global regulatory landscape, the merging of AML and anti-fraud efforts, the varying AML requirements across key jurisdictions, and why it is crucial for Australian financial institutions to stay abreast of international AML standards.

Evolving regulation

Globally, regulations are constantly shifting, with scrutiny becoming ever more stringent. The Financial Action Task Force (FATF) significantly shapes the global AML regulatory landscape, offering a framework for financial institutions and regulatory authorities on AML/CFT policies and practices, and setting international standards.

Compliance programs are under heightened scrutiny as regulatory bodies impose stricter requirements and stiffer penalties for non-compliance. This intensified enforcement is evident in the increased authority granted to sector supervisors worldwide, such as the establishment of the Anti-Money Laundering and Countering the Financing of Terrorism Authority in Europe and the sweeping fining powers now held by the UK’s Solicitors Regulation Authority.

In Australia, AUSTRAC has ramped up its supervision and dished out billions of dollars in fines in the casino and banking sectors. As the next mutual evaluation approaches in 2026, Australian institutions would be wise to draw lessons from international experiences and closely monitor regulatory and supervisory developments worldwide.

Convergence between AML & anti-fraud

Traditionally, financial crime compliance and fraud have been managed in separate silos. Compliance teams have focused on meeting sanctions and anti-money laundering (AML) regulations, while fraud departments have concentrated on identifying and investigating fraudulent activities. Despite their distinct roles, both areas share common requirements for risk assessments, verification, and screening.

Given these similarities, it makes sense for compliance practices to merge and tackle the requirements of fraud and AML together. These partnerships are already being struck, resulting in stronger customer risk assessments and more efficient onboarding processes.

Regulators are increasingly emphasising the identification and verification of beneficial ownership to prevent the misuse of corporate structures for illicit purposes. Recent crackdowns have targeted structures that favour anonymity, such as nominee arrangements, multi-layered entities, trusts, and foreign corporations.

Reflecting this new focus, legislative changes have been enacted in the UK, EU, and more recently, the US, with the implementation of beneficial ownership registers. AUSTRAC in Australia is likely to follow suit with its Tranche 2 reforms.

Difference in AML requirements

First AML has extensive experience operating in the EU, US, UK, Australia, and New Zealand. Due to this, we recognise the importance of adapting to local regulations. Even if an Australian financial institution operates solely within Australia, it may still be subject to international AML obligations, particularly when onboarding complex clients.

Therefore, understanding key global AML requirements that are not yet part of Australian regulations is crucial.

This begins with the U.S. Office of Foreign Assets Control (OFAC) Sanctions, designed to prevent non-U.S. entities from engaging with U.S.-sanctioned entities. Non-U.S. reporting entities must comply with these sanctions, even without direct exposure to the United States.

Recent enforcement actions, like the $3.7 M settlement with EFG International AG, highlight the consequences of non-compliance. EFG, a Swiss private banking group with subsidiaries including in Sydney, facilitated securities and funds transfers for sanctioned Cuban and Russian entities via U.S. banks. EFG's failure to identify and screen ultimate beneficial owners concealed in Panamanian and BVI corporate structures led to sanctions evasion through complex corporate arrangements.

At a minimum, Australian financial institutions should screen all transactions and customers against OFAC lists, particularly beneficial owners at each layer. For Australian reporting entities using US banks, firms should expect to see data and screening questionnaires coming their way on how you onboard and screen customers and UBOs, how UBOs are calculated and how screening hits are escalated. 

There is new legislation in the US under the Corporate Transparency Act (CTA), which came into effect on 1st January 2024. These new laws mandate that all US and non-US companies operating in the US submit beneficial ownership information to the regulator FINCEN (Financial Crime Enforcement Network). 

Reporting entities should evaluate whether their U.S. portfolio companies and themselves are subject to these disclosure requirements and establish compliance procedures for identifying and updating beneficial owners.

Similarly, the new UK Economic Crime and Corporate Transparency Act requires non-UK entities operating in or owning portfolio companies or property in the UK to disclose beneficial ownership. There are two main differences compared to Australian AML requirements: beneficial ownership thresholds are set at more than 25%, not 25% or more, and beneficial owners must verify their identities with UK Companies House. UK verification is stricter than Australia's, requiring ID anti-tampering checks and biometric liveness checks, which are not mandatory in Australia.

Importance of maintaining a comprehensive understanding of international AML standards

The regulatory trends and global AML requirements underscore the necessity for reporting entities to stay compliant with both local and international regulations. This dual compliance is essential for operating successfully on an international scale, adhering to global AML regulations, and mitigating money laundering risks.

Beyond avoiding regulatory penalties, adopting a global perspective on AML compliance offers significant benefits. In an industry where client trust is paramount, non-compliance with AML regulations can irreparably damage an institution’s reputation. Conversely, a strong commitment to compliance enhances trust and credibility, fostering stronger relationships with clients, investors, and regulators.

To achieve this, firms are increasingly leveraging technology to ensure compliance with the latest global standards. Instead of relying on Excel spreadsheets, manual reminders, and siloed point solutions, entities are transitioning to integrated, end-to-end systems tailored to their customer onboarding workflows.

Compliance teams are now implementing smart global compliance rules and event-based triggers to maintain adherence. Artificial intelligence is being utilised to monitor patterns, detect suspicious behaviour, and automate routine tasks such as data entry, report generation, and document verification.

The bottom line

As financial professionals, one of the key responsibilities is to anticipate future threats and regulatory trends to safeguard firms and their clients. This forward-looking approach, while challenging, is essential.

Adopting a global perspective on compliance is one of the many strategies firms can employ to protect their future. This proactive stance not only fortifies the firm but also reassures clients, who will value the foresight and comprehensive understanding of AML requirements.