AML Reform Part 1: Transfers of Value

January 17, 2025

Background

In December 2024, legislation to implement the long-awaited reforms to the AML/CTF regulatory framework received Royal Assent and draft Rules were released for consultation, filling in some of the details intentionally left for completion in the AML/CTF Act.

We intend on publishing a series of targeted updates in respect of the current AML/CTF reform. This will include in relation to changes to the regulation of:

• 'transfers of value' (this alert);
• 'AML/CTF Programs';
• 'initial customer identification and ongoing due diligence'; and
• 'risk assessments'.

New regulation of transfers of value

The updated regime that will broadly take effect in March 2026 (by which time the Rules will be finalised) is a complete reconstruction of the AML/CTF regulation of 'transfers of value', that will apply across all payment service and remittance providers. Given the complexity and uncertainty in some of the existing definitions that will be repealed, the new framework appears to provide a welcome simplification of the regulatory oversight for this sector. However, the simplified version and unified approach is also more comprehensive - potentially capturing entities which previously took the view they fell outside the regime.

Part 5 of the AML/CTF Act has been overhauled to regulate telegraphic transfers, remittances, virtual asset transfers, and other transfers of value. While there remains differences between types of institutions providing these services and the role taken in the money-chain, the new regime has attempted to provide increased consistency for ultimately providing similar services.

Currently, there is a distinction drawn between transfers of value facilitated by financial institutions and 'non financiers'. Under the updated framework, the requirement to pass through details relating to the payment will apply across all entities in the transfer of value chain (including non-bank remitters). The information required has also been expanded.

It is also important to note that some of the existing definitions remain but have been updated to cover broader concepts (for example ordering and beneficiary institutions are not limited to financial institutions).

Who the new framework applies to

Ordering institutions: Person that accepts instructions for the transfer of value (whether directly or indirectly). The new definition provides additional clarification to identify who the ordering institution for a transfer of value is, in recognition that this can take different forms across different industries. It does this by prioritising the party responsible for various 'criteria' of initialising the transfer. The following criteria were shifted from the AML/CTF Act to the proposed Rules in the version enacted. The first person to satisfy one of the following (in descending order of priority) is the ordering institution:

1. arranges for the transfer under an offsetting arrangement with the beneficiary institution;
2. authorised by payer to transfer the value from another source;
3. holds the value to be transferred in a payer account or otherwise on deposit from payer (including in a virtual asset wallet); or
4. receives from the payer, or a person acting on behalf of the payer, the value that is to be transferred.

Intermediary institution: Person passing on a transfer message for a transfer of value.

Beneficiary institution: Person making the transferred value available to a payee. Like ordering institutions, this definition provides a similar cascading tool to identify who the beneficiary institution for a transfer of value is. The criteria for this definition are similar to those above (again in descending order of priority):

1. arranges for the transfer value to be made available to the payee under an offsetting arrangement with the ordering institution;
2. makes the transferred value available to the payee under an arrangement with the payee, by depositing the value with a third-party deposit-taker;
3. makes the transferred value available to the payee by depositing the value into an payee account held with the person, or otherwise holding the value on deposit for the payee; or
4. makes the transferred value available to the payee directly, or their agent.

AUSTRAC guidance is expected to contain numerous example scenarios setting out different types of 'value transfer chains' to assist in applying these criteria and identifying the ordering institution, intermediary institutions and beneficiary institutions in each of them.

These definitions are intended to reflect that transfers of value are done in different ways, including where not all these criteria are met or carried out by the same person.

May be a single value transfer or multiple chains

What is effectively a single transfer may also involve a series of related value transfers, each separately regulated, with multiple ordering and beneficiary institutions. Whether there are separate transfers (with separate instructions) or a single chain (with information passed on to an intermediary institution) will likely depend on the underlying arrangements in place between the institutions.

Incidental transfers excluded

As had been hinted to under the existing regime, most value transfers that are done incidentally to the provision of another service will be excluded, unless it is a financial institution (or money exchange or gambling service).

Obligations

Ordering institutions

• Before the ordering institution passes on a value transfer message, the ordering institution must have collected and verified information specified in the AML/CTF Rules.
• Ordering institution must pass on information specified to the next institution in the value transfer chain.

Beneficiary institutions

• Take reasonable steps to monitor whether it has received the information specified and whether the information received about the payee is accurate.
• Otherwise, to either refuse to make the transferred value available to the payee or to make the transfer and take 'such other action' (in accordance with their AML/CTF program).

Intermediary institutions

• Reasonable steps to monitor whether they have received the information specified (this is a distinct obligation from the beneficiary's one).
• Otherwise, to either refuse to pass on the transfer message for the transfer of value or to pass on the transfer and take 'such other action' (in accordance with their AML/CTF program).
• Intermediary institutions will have limited obligations under the AML/CTF Act, given that they do not have a direct ongoing relationship with payer or payee (e.g. limited ongoing CDD).

Specified information and required action

	Ordering institutions (Actions: C: Collect, V: Verify and/or PO Pass on)	Beneficiary institutions (to monitor) (Action: Monitor)	Intermediary institutions (Action: Monitor for receipt of information and pass on)
All circumstances not specified below	Payer information C V PO Payee information C PO	Payer information Payee information	Payer information Payee information
Domestic & via BECS / third-party bill payment system	Payer information C V Payee information C Tracing information PO	Tracing information	Tracing information
Multiple transfers of value from a payer	Payer information C V PO Payee information C PO (for each transfer) Tracing information PO (for each transfer)	Payer information Payee information (for each transfer) Tracing information (for each transfer)	Payer information Payee information (for each transfer) Tracing information (for each transfer)
Card based pull payment (direct debit or refund)	Card number PO	Card number	Card number
Transfer to self-hosted virtual asset wallet	Payer information C V Payee information C	Payer information Payee information
Money from a foreign country via internation value transfer - via BECS		Tracing information	Tracing information

International value transfer reports

The party responsible for incoming and outgoing international transfer reports more closely follows the location of the value transferred in preference to the locations in which instructions were sent from and received.

The draft Rules also elaborate on when value is considered 'in' a country, including through the location of the account held at a permanent establishment of the entity in the country, or under certain offsetting arrangements or potential settlement accounts with another person in the country. This may increase the circumstances in which an offshore remitter may be considered to have met the required geographical nexus.

The reporting obligation may be discharged by the intermediary institution in the international transfer chain under an agreement with the relevant reporting entity. The AML/CTF Rules may yet prescribe circumstances when it must.

Other interesting definitions and concepts to note:

• 'Transfers of value' is broad and includes a transfer of money, virtual assets and other property. This is intended to reflect the range of transfers required by FATF recommendations. However, the transfer of physical currency or other tangible property is expressly excluded.
• In a 'value transfer chain', the payer and payee may be same person.
• Legislation is now expressly clear that the requirements for remitters apply to both domestic and cross-border transfers.
• While transfer of digital assets are included in the broad definitions, it has customised obligations and due diligence tailored to it, including prohibitions from providing the designated services or passing on information to those required to be licensed but are not. There are also specific exceptions where one party in the chain has determined on reasonable grounds that there is a risk the other is not capable of safeguarding the security or confidentiality of the information.

Next steps

While the legislation has been passed, some of the details set out in the rules are still open for public consultation which will close 14 February 2025.

We will also be publishing a series of targeted updates relating to the AML/CTF reform, including for the 'required changes to existing AML/CTF Programs', and changes required to your processes relating to 'initial customer identification and ongoing due diligence' and for 'risk assessments'.

Please contact our team if you have any queries regarding any of the above.