AML/CTF impacts of SuperStream measures

Analysis

AML/CTF impacts of SuperStream measures

Issue 16, October 2013

The ‘SuperStream’ package of measures impact how super funds comply with their AML/CTF obligations, and may require reconsideration of the approaches traditionally taken by super funds to member due diligence.

As part of the broader Stronger Super reforms, the ‘SuperStream’ package of measures1 aims to make the processing of everyday transactions easier, cheaper and faster. These measures impact how super funds comply with their AML/CTF obligations, and may require reconsideration of the approaches traditionally taken by super funds to member due diligence.

‘SuperStream’ - Rollover changes

The SuperStream measures include changes to the rollover process and will require APRA-regulated super funds to process rollovers faster (within three working days of receiving a rollover request) and electronically. A number of Funds have already commenced transitioning to the new rollover provisions.

SMSF’s – prospective AML/CTF changes

The rollover of superannuation benefits from super funds to self-managed super funds (SMSFs) is not currently a designated service under the AML/CTF Act2,and therefore do not currently attract AML/CTF obligations. However, in conjunction with the ‘SuperStream’ reforms, proposed legislation3 is seeking to capture this activity as a ‘designated service’, which would require super funds to comply with relevant AML/CTF obligations with respect to SMSFs, including member due diligence.4

Member identification and verification for SMSF’s

Currently, funds are exempted from carrying out member due diligence for rollovers and contributions5, and must only undertake member due diligence at the point a member cashes out his or her benefits. With respect to SMSF’s, funds will therefore need to develop new procedures for the processing of rollovers to enable them not only to identify and verify members in line with member due diligence requirements, but to complete these procedures within three working days of the request being received, such that the rollover can be processed to meet ‘SuperStream’ requirements. This may present challenges to a number of super funds, where existing procedures rely on the receipt of hard-copy documentation for identification and verification; a process which typically takes much longer than three days. As such, many super funds will need to explore ways to satisfy identification and verification requirements faster.

To assist with this, the Australian Taxation Office has established a Tax File Number (TFN) validation service, known as “Super TFN Integrity Check” (SuperTIC), to enable a fund to verify a member’s identity electronically. This new TFN validation service would qualify as “electronic data”, the use of which is permissible under the current AML/CTF Rules6 to verify member identify.

However, electronic data used for verification must be “reliable and independent” (as deemed by the fund/reporting entity in line with its risk assessment) and comply at least with the “safe harbour” procedure AML/CTF Rules7. Under this procedure, the fund must use at least two separate data sources to verify the identity of the member (specifically, the member’s name, residential address and/or date of birth) prior to processing the rollover.

The implication of this for most funds is that, despite the ability to use the new TFN validation service for verification of identity, the process will need to be supplemented by an additional source of “reliable and independent” verification – either hard copy or electronic (e.g. by using an e-verification service provider).

Addressing the potential impacts

Although the proposed amending legislation has not yet been passed into law, funds should consider the following to ensure they are prepared:

  1. With respect to verification using hard-copy documentation, funds may need to front-end the collection of the required verification documentation so that it is available when a rollover request is made (enabling the fund to comply with the 3-day timeline). 
  2. With respect to electronic verification, funds will need to ensure that Part B of their AML/CTF Program permits the use of electronic sources for verification. In addition, funds must consciously consider (and document) their assessment as to whether the SuperTIC and/or other e-verification service, qualifies as “independent and reliable” in the context of their particular program and risk assessment. 
  3. Funds should also ensure that their AML/CTF Program and supporting procedures are updated to document changes made to accommodate the requirements.
  1. Superannuation Data and Payment Standards 2012 
  2. Anti-Money Laundering and Counter-Terrorism Financing Act 2006 
  3. Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012. Note: This Bill has not yet been passed into law, and has lapsed, pending the resumption of Parliament under the new Government. 
  4. All references to member due diligence refers to both funds’ existing obligations and the proposed rollovers to SMSFs 
  5. Anti-Money Laundering and Counter-Terrorism Financing Act 2006, Section 39(6) 
  6. Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1), Part 4.2.7
  7. Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1), Part 4.2.12 – 4.2.13

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