This was a landmark transaction for the digital economy, as this is the first time an Australian bank has minted a digital asset linked to the value of the Australian dollar.

In this case, the ‘transaction’ was a proof of concept test case which involved ANZ minting a stablecoin, backed dollar for dollar by an AUD denominated deposit lodged with ANZ by its client, in a quarantined bank account. The stablecoin was then transferred to a digital currency exchange, and to a global digital asset custodian. A separate group provided anti-money laundering assurance for regulatory purposes and another group audited the capabilities of the coin and certified its existence on the blockchain and issuance to the highest security standards.

As this was a proof of concept, the client did not actually transact to purchase digital assets in this instance. The ‘transaction’ was unwound by reversing the process and ultimately ‘burning’ the stablecoin (i.e. removing it from the blockchain) and returning the customer’s fiat currency held in the quarantined ANZ bank account to them.

The next step to finalise prior to an actual transaction being facilitated is for the bank to arrange relevant licensing and ‘prove’ the process to exchange the AUD stablecoin for a USD denominated stablecoin to facilitate the purchase of digital assets by their client.

Potential for broader application

An interesting feature of ANZ’s stablecoin is that it is programmable for different use cases, such as execution and automation of different elements of smart contracts, making the scope for use in due course potentially limitless.

As an example, the bank is separately working on a use case that automates payment of excise duty to a digital wallet with the Australian Taxation Office when stock moves from a manufacturer to a wholesaler in a client’s supply chain.

A key element of the ANZ stablecoin is that it is issued by a regulated approved deposit-taking institution in Australia, which provides a layer of trust and gives clients confidence in the security standards surrounding issue and use of the coin. In the proof of concept transaction, the client’s fiat currency remained securely in the Australian banking system, while the stablecoin was utilised to move value through various elements of the transaction chain.

These types of transactions are only in the early stages of development in Australia, and accordingly are currently only potentially available to our largest institutional businesses. As the technology becomes more familiar over time, it is expected that they will become more mainstream and available to a wider range of users.

How can SW assist?

SW is working with a number of clients in the digital asset space in preparation for regulation of the sector in Australia following issue of the Bragg Report in October 2021  (Senate, 2021).

We anticipate that a licensing regime for the sector could be introduced as early as the end of 2022, and that it will include the establishment of capital adequacy requirements, auditing and responsible person tests, together with anti-money laundering and counter-terrorism financing regulation, in line with recommendations from the Report.

For advisory, tax or accounting assistance with your digital assets, reach out to your SW contact or the SW Digital Assets team to see how we can assist you.

The post A$DC – First Australian dollar stablecoin minted by ANZ Bank appeared first on SW Accountants & Advisors.

Our team has worked with many of Australia’s financial institutions and have a deep understanding of funds management, banking, insurance and financial services generally. 

Our reputation has grown alongside our expertise into most parts of the financial services sector across all service lines of our business:

• funds – including ethical investing
• superannuation
• banks – including digital & neos
• insurers
• private equity
• stockbrokers
• financial planners
• custodians
• responsible entities.

The pace of regulatory change in financial services is unprecedented, with the ever increasing involvement of regulators globally. Financial services institutions need constantly to review and revise their practices and procedures to meet the challenges of this evolving landscape.  

We value the relationships we have built with many financial services institutions. We believe the success of these relationships is determined not just by the quality of our services, but also our awareness of the unique aspects of the financial services sector and our approach that is tailored to your organisation because we know that one size does not fit all. 

This is an industry we know well and regularly offer technical training to our clients’ financial teams. 

Emerging Property Funds series

Supporting tomorrow’s property fund leaders, the EPFS has been running for over 6 years and is highly considered across the industry.

The program is a five-part series of interactive sessions for aspiring leaders in property funds management.

Each session features guest industry leaders and specialists as we take attendees through the entire property fund lifecycle, best practice and pitfalls.

Stay tuned for our upcoming sessions in 2025 and 2026!

Industry Associations & Memberships

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Following engagement with bank representatives and industry experts, and analysis of transaction reports and partner agency intelligence reports, the four new ML/TF risk assessments offer insights into ML/TF activity in the subsectors and details of key risks each subsector is exposed to.

Major banks

The AUSTRAC risk assessment found that major banks face a high risk of ML as the subsector has a very large customer base with customers in high-risk categories, high exposure to cash, increases in remote service delivery channels and high exposure to foreign jurisdiction risk.

Red flags for cash-related ML risks include successive cash deposits at ATMs to the same account by different individuals, and use of the same mobile number for verifying deposits to multiple beneficiaries.

Other domestic banks

Other domestic banks are also exposed to individuals charged with money laundering-related offences, as well as members of serious and organised crime groups.

Common concerns include unexplained wealth, where the source of funds could not be determined and was inconsistent with the customer’s profile; multiple transactions when one transaction would suffice; and rapid or complex movement of funds through multiple accounts.

Foreign bank branches

The average value associated with money laundering in the foreign bank branches subsector is much higher than other banking subsectors.

Clients with complex company ownership structures and intricate onshore and offshore banking arrangements are assessed to be the highest risk for money laundering.

Risk factors include obscuring beneficial ownership or source of funds; receipt of high-value international transfer of funds, and rapid and complex movement of funds between multiple companies linked by shareholders; trusts and beneficial owners and companies moving funds to high-risk and tax secrecy jurisdictions.

Foreign bank branches often follow AML/CTF programs that are developed by the head office, and may not always be suitable for the Australian market.

Foreign subsidiary banks

Money-laundering for foreign subsidiary banks predominantly relates to cash and transaction account-based services.

Suspicious transaction activity includes multiple transactions (potentially without economic rationale); and large and unusual transactions and activity inconsistent with a customer’s profile.

The subsector’s large retail banking footprint enables customers to place cash directly into the financial system, and offers multiple products and services that enable fast and efficient movement of funds.

Red flags include unclear source of funds; multiple large cash transactions, particularly in a short period of time; and multiple third-party deposits.

Risk mitigation strategies

• Remain vigilant of key criminal trends in Australia
• Perform a risk assessment where a new system is introduced, or where there is a change in a system, product or service
• Tailor off-the-shelf risk assessment tools to be business specific and reflect the risks posed
• Understand the customer’s source of funds and wealth, expected account activity, ownership structure and associated and controlling parties
• Proactively detect higher-risk customers, and have elevated risk mitigation strategies for Politically Exposed Persons (PEP)
• Perform high-quality investigations for the submission of Suspicious Matter Reports (SMR) to AUSTRAC
• Provide appropriate staff training and screen employees.

How we can help

Whichever banking subsector your business falls into, our teams are across anti-money laundering and counter-terrorism financing (AML/CTF) regulations in Australia and highly experienced in conducting reviews and providing recommendations for your AML/CTF program.

Reach out to our experts for:

• an obligation free discussion regarding your current program
• an AML/CTF gap analysis
• a full review of your AML/CTF program, and expert recommendations.

Contributors

Laura Toscano

E ltoscano@sw-au.com

Sean Wong

E sewong@sw-au.com

The post AUSTRAC assesses Money Laundering and Terrorism Financing risks for the Australian banking sector appeared first on SW Accountants & Advisors.