Legal development

International Funds Transfer Instruction (IFTI) reporting: An ongoing compliance challenge

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    An age-old adage in the project management world "high speed, high quality, low cost...pick any two" accepts the premise that compromise is inevitable.

    In the contemporary world of cross-border financial payments, reporting entities enjoy no such luxury. In fact, the opposite is the case given the importance of, and scrutiny placed on, the adherence to cross-border financial payment obligations. Therefore, there is no room for compromise when designing and implementing a robust IFTI reporting framework.

     

    IFTI reporting obligations

    Section 45 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) outlines an obligation to report IFTIs within 10 business days after the day on which the instruction is sent or received. An IFTI is defined under section 46 of the AML/CTF Act and includes an electronic funds transfer instruction (IFTI-E) and instruction under a designated remittance arrangement (IFTI-DRA). While IFTI obligations may appear deceptively straightforward, in practice, it can be difficult to determine which entity in a payment chain is obligated to provide the IFTI report to the Australian Transaction Reports and Analysis Centre (AUSTRAC) .

    Chapters 16 and 17 of the AntiMoney Laundering and CounterTerrorism Financing Rules Instrument 2007 (No. 1) (Cth) (AML/CTF Rules) provide details of the information to be provided by a responsible entity when submitting an IFTI report.

     

    The evolving cross-border payments landscape

    Regulator expectations in relation to IFTI reporting have intensified in recent times. In response, reporting entities are facing ongoing challenges meeting their IFTI obligations, an issue which is compounded by emerging developments within the payments landscape, as summarised below:

    • end customers are expecting frictionless, near-real-time payments with richer associated messaging;
    • payment volumes are increasing at a rapid pace;
    • available payment methods are expanding;
    • increased scrutiny on payment transparency and improved reporting outcomes; and
    • a migration of cross-border Society for Worldwide Interbank Financial Telecommunication (SWIFT) payments to a new standard, known as the International Organization for Standardization (ISO) 20022, is due to take place before November 2025.

    The need for improvements in the IFTI reporting domain

    Recent well-publicised enforcement action by AUSTRAC has highlighted the consequences a reporting entity may face if it has failed to implement a robust IFTI reporting framework.

    In conducting numerous cross-border payment reviews for our clients, including assessments of the associated regulatory reporting obligations, we have observed that clients are over-reporting, under-reporting and mis-reporting their cross-border payments. In some cases, certain payment message types have been mis-used and payment data has been identified in incorrect fields.

    The improper classification of payment messages and the presence of data quality issues reduce payment transparency and make adherence to IFTI reporting obligations more difficult to achieve.

    Furthermore, a failure to detect and rectify weaknesses within a reporting entity's IFTI reporting framework may impede their ability to effectively migrate to the ISO 20022 standards before November 2025.

     

    Concluding IFTI reporting considerations

    Given AUSTRAC's recent willingness to pursue enforcement action in response to IFTI non-compliance, it is important for reporting entities to ensure they have implemented a robust IFTI reporting framework.

    Reporting entities can ensure they are well placed to consistently achieve accurate and compliant IFTI reporting outcomes by:

    • identifying and remediating payment data quality issues;
    • understanding which of their cross-border payments are IFTI-reportable and which are not;
    • ensuring payment messages are structured as per SWIFT guidelines;
    • enriching payment messages, to align with IFTI reporting requirements; and
    • removing manual effort by automating payment processing and IFTI reporting.

    Authors: Samantha Carroll, Partner and Kieran Francis, Director, Risk Advisory.

     

    This publication is a joint publication from Ashurst Australia and Ashurst Risk Advisory Pty Ltd, which are part of the Ashurst Group. 

    The Ashurst Group comprises Ashurst LLP, Ashurst Australia and their respective affiliates (including independent local partnerships, companies or other entities) which are authorised to use the name "Ashurst" or describe themselves as being affiliated with Ashurst.  Some members of the Ashurst Group are limited liability entities.  
    The services provided by Ashurst Risk Advisory Pty Ltd do not constitute legal services or legal advice, and are not provided by Australian legal practitioners in that capacity. The laws and regulations which govern the provision of legal services in the relevant jurisdiction do not apply to the provision of non-legal services. 
    For more information about the Ashurst Group, which Ashurst Group entity operates in a particular country and the services offered, please visit www.ashurst.com.

    This material is current as at 28 June 2021 but does not take into account any developments after that date. It is not intended to be a comprehensive review of all developments in the law or in practice, or to cover all aspects of those referred to, and does not constitute professional  advice. The information provided is general in nature, and does not take into account and is not intended to apply to any specific issues or circumstances. Readers should take independent advice. No part of this publication may be reproduced by any process without prior written permission from Ashurst. While we use reasonable skill and care in the preparation of this material, we accept no liability for use of and reliance upon it by any person.

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