Anti-money laundering and counter-financing of terrorism obligations
Domain 7 - Anti-money laundering and counter-financing of terrorism obligations
This domain tests the AML/CFT Act 2009 duties that apply to lenders and financial advisers when establishing a residential lending relationship.
Core rules
- Reporting entities must conduct customer due diligence (CDD): identify the customer, verify identity, understand the nature and purpose of the relationship, and identify beneficial owners.
- Enhanced CDD applies to politically exposed persons, high-risk countries and complex ownership structures.
- Source of funds and source of wealth must be established where risk requires it.
- Suspicious activity or proposed activity must be reported to the Financial Intelligence Unit; tipping off is prohibited.
- Records must be kept, generally for five years, and a risk assessment and AML/CFT programme must be maintained.
Worked example
A borrower receives a $200,000 gift from an overseas relative for a deposit. Standard CDD on the borrower is not enough. The lender should verify the donor's identity, the relationship, the donor's source of funds, and the movement of funds through bank statements. If the explanation is inconsistent or the jurisdiction is high-risk, enhanced CDD and a suspicious activity report may be required. The adviser must not tell the borrower that a report has been made.
Traps
- Relying on an introducer's CDD without meeting the lender's own obligations.
- Identifying only the borrower and missing a corporate beneficial owner.
- Treating a gifted deposit as low risk without verifying the donor.
- Tipping off the customer about a suspicious activity report.
- Keeping records for less than the required period.