Greg Kilminster
Head of Product - Content
AUSTRAC publishes AML guidelines – students as mules
The Australian Transaction Reports and Analysis Centre (AUSTRAC) has published a Financial Crime Guide for financial service providers to help them understand and identify signs of criminal networks exploiting vulnerable members of the community as money mules. The report focuses on the potential of international students and non-permanent residents in Australia as high-risk groups who are vulnerable to being recruited as money mules.
A money mule is someone who transfers or moves illegally acquired money on behalf of someone else. Money mules can move funds in various ways, whether it be physical cash, through bank account transfers, obtaining and depositing cashier’s cheques, digital currency, use of prepaid debit cards, or via remittance service providers. Money mules may move money using a personal or company bank account, someone else’s account, or may be instructed to register a company and then open a business bank account.
The report considers how money mules are recruited and identifies red flags and warning signs to be aware of and how to prevent such activity. It also includes useful case studies.
Click here to read the full RegInsight on CUBE's RegPlatform.
New BNPL regulations announced in Australia
The Australian government has introduced new consumer protection legislation aimed at regulating Buy Now Pay Later (BNPL) operators under the National Consumer Credit Act (Credit Act). This move will subject BNPL providers to the same consumer protections as other credit forms, such as credit cards and loans.
Currently, most BNPL products are not covered by the Credit Act, leaving consumers without critical protections like affordability checks, effective dispute resolution, and hardship processes. The new legislation will amend the Credit Act to require BNPL providers to hold an Australian credit licence and comply with existing credit laws regulated by the Australian Securities and Investments Commission (ASIC).
A notable aspect of the legislation is the establishment of a new category of ‘low-cost credit’ under the Credit Act, reflecting the lower risk and cost associated with BNPL compared to other credit forms. BNPL providers will still be required to assess the suitability and affordability of their products for consumers.
The new laws aim to strike a balance between consumer protection, innovation, and competition, ensuring safer and better-regulated credit options for consumers.
Click here to read the full RegInsight on CUBE's RegPlatform.
ESAs publish coordinated approach on greenwashing risks
The European Supervisory Authorities (EBA, EIOPA, and ESMA – ESAs) have released their Final Reports on greenwashing in the financial sector. The reports emphasise the need for a coordinated approach to tackle greenwashing, where sustainability-related claims do not accurately reflect the true sustainability profile of an entity, financial product, or service, hence potentially misleading consumers and investors.
The ESAs note the responsibility of financial market players to provide fair, clear, and not misleading sustainability information. They highlight the steps already taken by national competent authorities (NCAs) in supervising sustainability-related claims and outline a future strategy for enhancing supervision.
The ESAs' reports, while focused on the EU financial sector, call for a global response to greenwashing, advocating for close cooperation among financial supervisors and the creation of interoperable standards for sustainability disclosures.
The ESMA report outlines key actions to enhance supervisory capabilities:
- NCAs are encouraged to increase scrutiny of sustainability claims, invest in supervisory tools, and integrate greenwashing risks into their programs.
- ESMA will support greenwashing risk monitoring, deploy SupTech tools, and initiate Common Supervisory Actions as needed. Additional guidance may be provided for high-risk areas.
- The European Commission is urged to strengthen NCAs’ and ESMA’s mandates, support retail investor education, and ensure legislative frameworks enable NCAs’ data access.
The EIOPA report outlines a number of key proposals as follows:
- Proposal 1: Using the ESAs common understanding of greenwashing as a reference point.
- Proposal 2: Building a common EU supervisory approach in relation to sustainability claims and greenwashing.
- Proposal 3: Tackling greenwashing through enhanced supervision and targeted supervisory activities.
- Proposal 4: Preventing greenwashing.
- Proposal 5: Enhancing supervisory resources and expertise to tackle greenwashing.
- Proposal 6: Closing the gap related to non-life insurance products with sustainability features.
- Proposal 7: Consumer-centric sustainability preferences.
- Proposal 8: A sustainability-related investment framework that works for insurance and pension consumers and providers.
- Proposal 9: Enhancing sustainable finance and mitigating greenwashing in the occupational pensions sector.
- Increased greenwashing trends: There has been a notable rise in alleged greenwashing cases across all sectors, with a 21.1% increase globally and a 26.1% increase in the EU in 2023 compared to 2022.
- Impact on risks: Greenwashing predominantly impacts reputational and operational risks, with litigation risks also on the rise.
- Sustainable finance products: As institutions expand their sustainable finance offerings, addressing greenwashing is critical to maintaining market confidence and trust.
- Regulatory framework: The existing legislative framework provides a strong foundation to combat greenwashing. Prioritising the completion and robust implementation of new regulations is essential. Further efforts should focus on improving data quality, usability, consistency, and international interoperability.
- Institutional measures: Institutions should ensure that sustainability claims are accurate, substantiated, current, and fairly represent their overall profile or the product profile. Claims should also be presented clearly.
- Supervisory actions: Competent authorities should continue their efforts to identify and monitor greenwashing risks within their supervisory mandates.
Click here to read the full RegInsight on CUBE's RegPlatform.
SAR report and advice from DFSA
The Dubai Financial Services Authority has shared a presentation which reviews suspicious activity reports (SARs) and identifies some key findings and themes.
The report’s findings include the following observations.
- In 2020 the top three reporting sectors (Securities, Banking and Company Service Providers) made 356 SARs or suspicious transaction reports (STRs). In 2023, this number had grown to 685 and the top three sectors had changed to Banking, Securities and Money Services.
- Of these, Securities firms reported the most with 34 firms reporting in 2020 rising to 58 firms in 2023.
- Of the STR/SARs reviewed, there were weaknesses in policies, procedures, systems and controls including, amongst others:
- a lack of consideration of local requirements,
- common business red flags not well identified,
- a disconnect between transaction monitoring and internal reporting to the MLRO,
- limited or absent documentation of internal reports made to the MLRO, and
- the DFSA observed instances that warranted internal reporting to the MLRO but were not escalated.
- Often there is a lack of independence of the MLRO when deciding to make a STR/SAR.
- Immediate actions post submission of STR/SAR to the FIU are not well documented.
- Limited “lessons learned” processes are conducted following submission of STR/SARs.
- Training content for staff is often generic and does not contain relevant coverage of the red flags applicable to a firm’s business model or contains red flags that are not applicable to the firm’s business model.
As well as providing some specific good practice actions to address the above points, the report concludes with the following clear advice.
“The DFSA would like to remind firms and their senior management:
- Firms must remain fit and proper to perform anti-money laundering functions at all times (including adequate resources, systems and controls, policies, and procedures).
- Responsibility for a firm’s compliance with the AML Module lies with every member of its senior management.
- Firms’ senior management are required to carry out their responsibilities in the AML Module with due skill, care, and diligence.”
Click here to read the full RegInsight on CUBE's RegPlatform.