Who are you dealing with?

February 5th, 2018

BY DUNCAN STUART, CONNECTIVE CSM.

As a mortgage broker, you are on the front line when it comes to preventing crimes like money laundering. It’s often the case that such crimes are seen by the customer as nothing more serious than ‘little white lies’ – but the consequences can be very serious for you if you get it wrong!

Customer Due Diligence (CDD) is an important part of your responsibilities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and associated rules. This regime in Australia requires us to know who we are dealing with on a day to day basis. The concept of Know Your Customer (KYC) has been around for many years and is based on conducting reasonable due diligence to ensure that you know who you are doing business with.

How does this affect you?

As an ACL holder or a Credit Representative, you have obligations under the legislation to adequately identify your customers when they apply for a loan.

Customer due diligence requirements include:

• Collecting and verifying customer identification information
• Identifying and verifying the beneficial owners of a customer (for non-individual customers)
• Identifying whether a customer is a Politically Exposed Person (PEP) or an associate, and taking steps to establish the source of funds used during the business relationship or transaction
• Obtaining information on the purpose and intended nature of the business relationship.

What is the biggest challenge for mortgage brokers?

The biggest issue mortgage brokers face is the possibility of money laundering. Using undeclared income to purchase a property may potentially constitute money laundering – and a person does not necessarily need to be a big time criminal to commit this crime! That’s why it is important that you are confirming your customer’s identity, verifying their income and establishing the source of the funds used as a deposit to purchase a property, for each loan you write.

AUSTRAC has the power to issue penalty orders and infringement notices to both individuals and corporate entities amounting to tens of thousands of dollars for breaches of the legislation.

What do you need to do?

There are some simple steps to follow in the customer due diligence process which will assist you and ensure that your obligations are being met:

• Identify your customer – check all identification provided against the original documents (Drivers Licence, Passport, Medicare Card etc)
• Confirm where large gifted amounts have come from – bank statements, gifting letter etc.
• Review your client data base periodically– this is as simple as contacting your customers to update their information
• Cross check the information you have received with reliable sources – internet, white pages, business listings (ABN) etc
• Ensure that the information you provide to the lender is up to date, accurate and verifiable
• Make adequate enquiries of the customer every time – don’t allow them to rush you through this process
• Take all reasonable steps to verify the information provided to support the transaction
• Consider whether a customer might be deemed high risk. An example might be if they have an unusually lavish lifestyle contrary to their stated income. Another sign might be if they become particularly evasive when questioned around their income or source of savings.

The requirement that lenders impose to meet face-to-face with customers is strongly linked to the Anti-Money Laundering (AML) and Counter Terrorism (CTF) legislation and plays an important part in the Customer Due Diligence process.

At Connective we recognise that there will be circumstances where meeting your customer face to face is not easy. In these situations, it’s important to put controls in place to mitigate risk and to do what is reasonable.  Further information on mitigating risks in this area can be found on the Connective Wiki here.

Where can you get more information?

The Australian Transaction Reports and Analysis Centre (AUSTRAC) are Australia’s AML/CTF regulator and their website contains invaluable information relating to the AML/CTF Rules, Customer Due Diligence and what your obligations are. You can visit their website here.

If you have any questions on these obligations or how to address them in your business, the Connective Compliance Team are here to offer you the support you need. Just click your help icon in Mercury to get in touch, or simply email us at compliance@connective.com.au. We’ll be more than happy to help.