As Australia’s Tranche 2 AML/CTF legislation looms on the horizon, a wave of new compliance requirements is set to crash upon the shores of small and medium-sized enterprises (SMEs) in the real estate, accounting and legal sectors. These industries are largely made up of SMEs and they are about to navigate the same turbulent waters that earlier reporting entities faced under the original AML Act. And based on our experience at WhiteLight AML, the challenges they’ll encounter are well-known but no less daunting.
The Learning Curve of AML Compliance
One of the most significant hurdles for SMEs entering the AML compliance regime is understanding what compliance truly entails. While most reputable AML advisory firms provide training for newly minted AML Compliance Officers (AMLCOs), we’ve observed that the knowledge doesn’t always stick. This is particularly true for SMEs, where the AMLCO role often falls to someone whose primary focus is revenue generation, frequently a client-facing senior staff member with little or no AML experience. Selecting the AMLCO often feels like a game of drawing straws rather than a strategic decision.
Even with training, SMEs are often left to fend for themselves once the advisory project concludes. Many struggle to draft the policies and procedures needed to support their AML Program. Some don’t write them at all. This gap in follow-up creates vulnerabilities that can snowball into serious compliance failures.
The Tranche 2 entities will likely face the same issues, compounded by their general unfamiliarity with AML obligations. Advisory firms have a golden opportunity here: offer periodic follow-ups to ensure their guidance doesn’t end at delivery. By proactively checking that policies are written, procedures are implemented, and AMLCOs are confident in their roles, they can help SMEs avoid future headaches.
The Promise of Automation is a Potential Trap
Another pitfall SMEs often encounter is an over-reliance on technology. AML solutions are sometimes pitched as a magic wand, promising seamless compliance through slick automated systems. While tools for identity verification (IDV) and watchlist screening are indispensable, they aren’t a replacement for genuine AML expertise.
We’ve seen SMEs buy into these promises, only to find themselves drowning in unresolved watchlist alerts and unfamiliar with enhanced customer due diligence (ECDD). For some, the first Independent Review is a rude awakening, revealing gaps that lead to expensive remediation needs and business disruptions.
This isn’t a failure of technology itself, it’s a failure of understanding created by a lack of experience. AML solution vendors could mitigate this by offering more robust post-implementation support. If an SME lacks AML expertise, vendors should flag this and suggest additional training or a return to their advisory firm for guidance. While some vendors excel at this kind of customer care, many could do more.
The Tranche 2 Tsunami
With Tranche 2 legislation set to bring thousands of new entities into the AML/CTF fold, these challenges will only multiply. Advisory firms and technology vendors alike will be stretched thin, attempting to meet the demands of businesses grappling with unfamiliar and complex obligations.
The sheer scale of this expansion raises critical questions: How do we ensure SMEs are properly supported? How do we avoid the current "sink or swim" approach, where businesses either figure it out on their own or flounder under the weight of compliance?
Avoiding the Sink or Swim Scenario
We believe the solution lies in collaboration and foresight. Advisory firms, technology vendors and SMEs themselves must recognise that AML compliance isn’t a one-and-done task. It’s an ongoing process that requires continuous education, regular reviews and a willingness to adapt.
For advisory firms, this means stepping up to offer post-program delivery services. Whether periodic reviews, additional training or hands-on support with policy creation. For vendors, it’s about looking beyond the sales pitch and providing the post-implementation hand-holding many SMEs desperately need.
As for SMEs, they need to embrace the reality that AML compliance is an investment, not just a regulatory burden. Allocating resources to build internal expertise and leveraging external support where necessary will pay dividends in the long run.
The introduction of Tranche 2 is a moment of reckoning for Australia’s SME-heavy sectors. The choice they face is stark: sink or swim. With the right support and mindset, they can do more than just stay afloat. They can thrive in a regulatory landscape that demands diligence and adaptability. Let’s ensure they have the tools, training and on-going guidance to make that happen.
Written by Mike Kossenberg
Date 10 December 2024
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