Changes to value transfer obligations

There are currently four separate value transfer services in the current Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the AML/CTFAct):

• transfers of value to a payee, and those from a payer, facilitated by financial institutions, which are subject to both electronic funds transfer instructions (EFTI) and international funds transfer instructions (IFTI) obligations
• transfers of value to a payee, and those from a payer, facilitated by non-financial institutions, which are only subject to IFTI obligations.

The new value transfer concept would include two new streamlined value transfer designated services:

• an ordering institution accepting an instruction for the transfer of value on behalf of a payer
• a beneficiary institution making the transferred value available to the payee.

This new value transfer concept would remove the outdated distinction between transfers of value for financial institutions and those for remittance service providers, and would ensure consistent requirements for reporting entities that perform a similar designated service regardless of whether the transfer of value involves financial institutions, remittance service providers or virtual asset service providers. 

Further, a new limited designated service is introduced for intermediary institutions in line with Financial Action Task Force (FATF) Recommendation 16.

In line with the changes to the value transfer services, the Bill would update associated definitions, such as amending the definition and terminology of ‘funds transfer chain’ with ‘value transfer chain’. The ‘value transfer chain’ refers to the passage of value between ordering, intermediary and beneficiary institutions where a transfer of value has occurred. The value transfer chain will capture a broader range of value transferred, including money, virtual assets or property.

To support the new value transfer services, the Bill would insert new definitions of ‘ordering institutions’, ‘intermediary institutions’ and ‘beneficiary institutions’. It sets out the obligations for each of these entities depending on their position in the value transfer chain. 

The new definitions provide a simpler approach for reporting entities to understand their responsibilities regarding their travel rule obligations

The Bill would extend the travel rule requirement to all entities that provide value transfer designated services. This includes financial institutions, remittance providers and virtual asset service providers for both domestic and cross-border transfers. 
The travel rule obligations are set out in the updated obligations for ordering institutions, intermediary institutions and beneficiary institutions. 
In accordance with FATF Recommendations 15 and 16, the relevant institution in the value transfer chain would be obliged to:

• collect travel rule information and verify payer details, where not already verified, for the ordering institution
• transmit travel rule information for ordering and intermediary institutions
• keep records of travel rule information, screen value transfer messages for missing travel rule information and take appropriate action for all institutions.

FATF Recommendation 16 also requires payee information to be included with transfers of value in addition to payer information. However, the information to be included with the transfers of value is subject to change as Recommendation 16 is currently under review by the FATF. 

The Bill would include a rule-making power for the AUSTRAC CEO to establish what information must accompany transfers of value for when the changes to Recommendation 16 are concluded. However, it is expected that the required information will be the payer or payee’s name, and a combination of their address or place of birth, and their customer number or unique transaction identifier. 

The rule-making power provided in the Bill also includes the ability for the AUSTRAC CEO to respond to technical industry developments, for example, the decommissioning of the domestic payments system, the Bulk Electronic Clearing System (BECS) which is being replaced with the New Payments Platform.

The current framework for submitting IFTIs is outdated and increasingly complex to apply to modern payment services. Under the Bill, these would be the key changes to the IVTS framework:

• IVTS reporting obligations would lie with the reporting entity closest to the Australian customer. The current ‘first-in last-out’ principle, where the obligation falls on the sender of an instruction to transfer funds out of Australia or the recipient of an instruction sent into Australia, causes significant regulatory uncertainty.
• IVTS reports would relate to the movement of value rather than the movement of instructions. The current requirement for IFTI reports is tied to the movement of instructions, rather than the value. Stakeholders have raised concerns about whether transfers that were cancelled or aborted could still trigger a reporting obligation.
• The current framework would be streamlined into a single IVTS report, so regardless of the type of value, there would no longer be a distinction between the current two types of reports, IFTI-Es for financial institutions and IFTI-DRAs for remittance service providers. 

Shifting reporting obligations to the entity with the closer business relationship with the customer, and ensuring they are tied to the actual movement of value, would eliminate data quality issues and enable more accurate customer information to be included in IVTS reports. 

The Bill would provide reporting entities the flexibility to designate responsibility to IVTS reporting to an intermediary institution. The original reporting institution will would retain liability for any failure to report.