Australia’s real estate industry is preparing for significant changes to compliance obligations - perhaps the largest changes in the past decade - with new anti-money laundering and counter-terrorism financing (AML/CTF) laws coming into effect from July 1.
The reforms will bring real estate professionals into Australia’s AML/CTF regime for the first time, introducing new requirements for customer identification, record-keeping, proof of source of funds for purchase and risk management.
As agencies rapidly prepare for the changes, significant activity is being undertaken by agents to understand the new obligations and become implementation-ready.
Mandatory identity verification and risk assessment for clients
Under the new rules, agents will need to complete what is called a “customer due diligence” on both buyers and sellers of property. This includes verifying a client’s identity, assessing and assigning a level of risk to that client, identifying and checking beneficial owners, interrogating the source of funds for purchase, and screening individuals against sanctions and politically exposed persons lists.
Quite a rigorous process, and quite different from anything we have ever encountered!
Ongoing customer due diligence requires agencies to monitor clients for changes in risk, ownership or behaviour that may pose a risk, and conduct additional identity checks and re-assessment of risk where necessary.
Reporting requirements are also required through to AUSTRAC.
Before engaging a new buyer’s agent client, the buyer’s agent must approach the client from a “Know Your Client” perspective. This means that there would be a formal onboarding process to determine the source of funds for the purchase, the purpose of the purchase and identify the person who will be purchasing the property. Customer Due Diligence checks must then be completed.
Real estate agencies will be busy in the lead-up! They will need to:
1. Undertake necessary education on the updated requirements
2. Update training records
3. Enrol with AUSTRAC by July 29
4. Establish AML/CTF compliance programs
5. Establish AML/CTF policies
6. Appoint a compliance officer
7. Train staff
8. Keep records after each transaction for seven years
9. Report suspicious matters to AUSTRAC
10. Monitor and review compliance
Certain situations will flag as high-risk, such as people purchasing with cash, complex ownership structures such as buyers transacting through offshore companies, and clients who are secretive, evasive or reluctant to provide personal details or identification documents.
Historically, AML/CTF obligations have applied to banks, casinos and digital currency exchanges, but from July 1, the laws are expanding to include many other professionals such as conveyancers, lawyers, accountants and of course real estate agents. So far, property management and rental search services are not included. I expect that in time, it may be included as those rental transactions facilitate the movement of money over time, and certain rental arrangements – such as many months’ worth of rent paid in advance – may cause concern.
The reason for the inclusion of these industries is that they facilitate large financial transactions that criminals can exploit for money laundering. The reforms recognise the real estate industry’s unique position in dealing directly with buyers and sellers, facilitating those transactions, whilst being in a position to suspect or recognise suspicious activity that may be of a criminal nature.
The reforms hope to insert a check-point in the process that may assist in interrupting a transaction and ultimately protect people from money laundering, drug smuggling, human trafficking and counter-terrorism financing.
How are real estate agents responding to these changes?
Arguably, the new laws represent one of largest nation-wide regulatory shift in the past decade.
The new requirements are onerous to earn, implement and adopt.
For larger businesses, staff compliance will be difficult to monitor and staff training may be difficult to implement in the early phases as teething issues are ironed out.
For smaller businesses, implementation may seem disproportionate to the scale of the business.
For customers, we anticipate dissatisfaction with the client onboarding process and the arduous forms and processes that clients will need to support in order to successfully onboard with a buyer’s agent.
We have started the conversations with our clients early, explaining the reason for the changes, how it hopes to improve safety, and what will be required of clients moving forward.
These additional checks are now a legal requirement and are industry-standard, and so as with banks and lawyers, our processes must adapt and be for the betterment of our society. We are all motivated by safety and we all want to transact on property in a way that supports confidence and security. I believe that as licensed real estate agents, we are ideally positioned to assist with this important compliance and which is designed to help combat serious crimes that harm people, families and livelihoods.