Client screening streamlined for advisers

Your financial advice business is at risk if your clients are not properly screened to check they are not politically exposed persons (PEP).

practice management

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) empowers the Australian Transaction Reports and Analysis Centre (AUSTRAC) to enforce compliance and seek a penalty if they believe your processes are inadequate. AUSTRAC has the ability to take the following legal actions to ensure compliance with the AML/CTF Act 2006:

  • civil penalty orders
  • enforceable undertakings
  • infringement notices
  • remedial directions.

These legal actions could be made public, which would cause your business reputational damage. In addition, the time and resources needed to comply with these actions could also weigh on your business. Effective client screening is a non-negotiable – but how can it be done efficiently?

New technology is providing more efficient screening

Client screening has become easier for advisers following the implementation of market-leading, automated screening technology by IOOF. Instead of you having to check multiple individual databases to verify and check whether a prospective client is a PEP or not, a centralised screening system is now in place, powered by World Check One. Using this technology, IOOF has screened over 400,000 clients since December 2019, identifying several PEPs and sanctioned individuals in the process.

The new technology (operated by the Financial Crime team at IOOF) automatically screens clients upon onboarding and throughout the entire business relationship. Client names, including aliases, and dates of birth are screened across local and international Government records, media, industry databases and proprietary archives. As well as identifying people in public positions, this identifies individuals with convictions for various crimes, including drug trafficking, embezzlement, money laundering, child exploitation and tax evasion.

Prior to implementing this technology, IOOF relied on advisers and clients to self-identify their PEP status at the onboarding stage. Now, IOOF can actively identify if a client is a PEP or sanctioned individual at the initial onboarding stage and thereafter. This ensures your clients are subject to appropriate due diligence and actively monitored before any designated service is provided, as well as for the lifetime of the client relationship.

PEPs can still be clients

It’s important to note that clients should still self-identify if they are a PEP or sanctioned individual when they open a new account. You should take care to ensure they complete the relevant questions in their onboarding application.

Even if someone is identified as a PEP, it doesn’t mean they can’t be a client. Instead, IOOF individually risk rates and documents the decision so that we can demonstrate to AUSTRAC that a risk-based approach was used when managing the client relationship. This process is known as enhanced customer due diligence (ECDD) and is conducted by the Financial Crime team. Once their investigation is complete, the Financial Crimes team will provide you with a copy of their screening report, including the client’s risk rating and PEP status to enable you to change it in your records.

What type of PEPs does IOOF most commonly find?

Looking at the PEPs identified at IOOF, the top five categories were:

  • legal – lawyers, magistrates and judges
  • political individual – people in political positions
  • crime – financial
  • crime – narcotics
  • individual – ‘a catch-all’ category, which includes relatives of PEPs, people awaiting trial and people in other prominent positions, for example, a CEO or CFO.

Scrutiny and enforcement likely to increase

Recent AUSTRAC investigations into money laundering at Westpac and Commonwealth Bank show that even large and well-resourced organisations can struggle to comply with AML/CTF regulations. It’s likely that AUSTRAC will continue to boost its scrutiny of financial services firms so having an effective screening process is more important now than ever before. If you would like more information about how IOOF screens your clients, please contact Melanie Gration from the Financial Crime team at melanie.gration@ioof.com.au.