Fix unreasonable product provider CDD demands on | Australian Markets

The Monetary Recommendation Affiliation of Australia (FAAA) is urging AUSTRAC to offer applicable exemptions for financial advisers within the proposed new AML/CTF guidelines regime in circumstances the place product suppliers are imposing unreasonable calls for.

The FAAA has pointed to so-called third-party preparations between product suppliers and Australian Monetary Providers Licensees and has claimed “over-reach” on the half of the product suppliers with respect to buyer due diligence (CDD) calls for.

It has instructed AUSTRAC that limits ought to be positioned on product suppliers together with prohibiting them from putting further necessities on AFSLs and advisers.

The FAAA has additionally really useful that AFSLs and advisers ought to be permitted to get well prices from product suppliers for enterprise CDD.

“Over time, product providers have reportedly over-reached in the ongoing CDD demands they place on advice practices under the auspices of their own AML/CTF obligations, with little regard to the impact of this practice or costs incurred on both the advice practice or the client,” the FAAA mentioned.

“While an Item 54 reporting entity is not obliged to conduct ongoing CDD, product providers frequently include these obligations in commercial agreements or operating procedures obliging the AFS licensee and adviser to carry them out. This creates a significant power imbalance,” the FAAA has instructed AUSTRAC.

“The most significant issues with the operation of third-party reliance is that the entity conducting the CDD (the ‘other person’) is not being relied upon by the other reporting entity (the ‘first entity’) – product providers do not rely on an adviser’s attestation regarding their client’s identity – they outsource, rather than rely,” it mentioned.

“Instead, commercial arrangements require that copies of all documentation be collected and held for production on request. This results in the item 54 reporting entity having to collect and store copies of documentation that they would otherwise be able to destroy once verification has been completed, significantly increasing cybersecurity risks for their practice.”

“Financial advisers are also being used as a mechanism to conduct additional CDD, including when no new designated service is being provided by either party, with the adviser and client bearing the cost of this process,” the FAAA mentioned.

“There is currently little consistency in what product providers request of advisers and many requests seemingly go beyond what is required in the law. Product providers expect advisers to undertake all CDD requests made by them. This has become a common contractual inclusion in AFSL/product provider distribution agreements which may include unreasonable expectations and demands placed on the adviser/AFSL, with no compensation for costs incurred by the advisers for doing this work,” the FAAA mentioned.