The Australian financial intelligence regulator AUSTRAC has revealed some of the most frequent reporting mistakes compliance teams are making when submitting suspicious matter reports (SMRs) – and many of them are very basic errors.
At a recent outreach event, AUSTRAC experts discussed some of the key mistakes they were seeing, including fields used incorrectly, address information not completed and entries transposed – often with serious results: “Just be mindful when you are reporting SMRs making sure you [don’t] put the victim’s name in the suspicious person field,” said AUSTRAC’s director regulatory capability, Paul Amiguet.
“We are just looking for some consistency. When the rules say ‘Do you know the ABN?’ You must supply the ABN.”
While there is evidently room for improvement in how compliance teams are completing SMRs, the wider question may be whether AUSTRAC’s SMRs – along with other regulatory forms across the globe – are as user-friendly as they could be. For example, Singapore’s Financial Intelligence Unit (FIU) publishes guidance on the importance of filing suspicious transaction reports (STRs), and the reporting requirements.
Changes to the Reporting System
AUSTRAC is continuing to innovate and develop its intelligence reports. As our ‘State of Financial Crime 2021’ report notes, suspicious activity report (SARs) filing is on the rise globally, with 74% of respondents saying they filed more SARs in 2020 than the previous year.
AUSTRAC recognizes that challenges with both the quality and volume of SMRs need to be addressed, with a 258% increase in SMR numbers over a four-year period, many of which are defensive. A recent survey found that 44% of respondents saw the design of the SMR and its process as a “priority issue”.
The regulator’s review is already underway and a customer advisory group has been established to provide additional feedback.
In the meantime, AUSTRAC has been proactive in helping compliance teams better understand the forms. In March, it released new guidance including an animation, fact sheet, and frequently asked questions on how to submit more effective SMRs. And in June, it shared the ‘Suspicious matter report: reference guide’ which is a must-read for compliance staff, especially those submitting SMRs.
What should compliance teams be doing?
There is currently an increasing sense of AML/CFT ‘momentum’ in Australia, which has not yet run its course. For those firms already obligated under AML/CFT legislation, this will mean taking a renewed look at the adequacy of their own policies, procedures, and controls. Meanwhile, for those likely to do so at some point in the near future – particularly those who have so far escaped regulatory attention – the question is whether it might be time to think ahead about how they can take early action to fight financial crime.
So what actions should compliance teams be taking?
- Be sure that you have reasonable grounds for suspicion and have collected all available information including enhanced customer due diligence checks
- Be timely – make sure that SMRs are submitted quickly. In Australia, that means within 24 hours if the suspicion is related to terrorism financing, and within three business days if it is related to other matters such as money laundering
- Make sure that full details are included. Good quality SMRs are not only well written but rooted in a genuine understanding of financial crime risks and rich data. AUSTRAC does not specify where firms should find these – as is common amongst regulators, they take a ‘solution neutral’ stance
- Be clear and concise in your suspicions, detail exactly what the offense is that you are suspicious of – who, what, where, when, why, and how
- Include a summary of your suspicions and reasons for submitting the report
It is also important that your internal training programs should reflect the latest guidance.
SMRs are a key way in which firms in the financial services sector interact with regulators, and making sure they are used correctly is crucial in helping to identify potential illegal activity and assists in the detection and prevention of the flow of illegal funds through Australia’s financial system.
As industry experience increasingly indicates, delivering good quality financial intelligence is difficult to do alone. In a complex and fluid risk environment, businesses need trusted platforms, data, and partners to help them deliver.