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Risk assessment of the mutual banking sector

November 6, 2019

 

 

The mutual banking sector is decidedly in the ‘medium-risk space’, according to a recent risk assessment Report published by AUSTRAC’s Financial Intelligence Unit (FIU).

 

Recently, the Australian Transaction Reporting and analysis Centre (AUSTRAC) turned their focus to the approach mutual banks have been taking to their AML/CTF obligations, last week releasing their money laundering and terrorism financing risk assessment on the mutual banking sector.

 

“Money laundering and financial crime enables serious criminal activity, such as drug trafficking, human trafficking and fraud, which causes real life harm to our communities. The financial sector must do their part to protect the Australian community from these threats,” AUSTRAC CEO Nicole Rose said, in the official statement that accompanied the release of the risk assessment.

 

“Increasingly, Australians are using the mutual banking sector as a trusted, community-focussed alternative to the major banks. As the sector continues to grow and consolidate, so too will its exposure to criminal exploitation,” she added.

 

The Report showed that the 73 regulated mutual banks all submitted at least one suspicious matter report (SMR) and, in total, the industry submitted 8,284 SMRs, amounting to $286 million in financial transactions. Five of those 73 banks accounted for 50 per cent of all the SMRs submitted.

 

From the sample, AUSTRAC found that 67 per cent of SMRs were related to suspected money laundering offences, while the next most-reported issue—at just 23 per cent—dealt with fraud against individuals.

 

When examining the mutual banking’s approach to implementation risks’ mitigation, the Report found that the level of implementation also posed a medium risk.

 

When it came to risk assessments, the Report noted the view of one expert, who highlighted the possibility that mutual banks might not be assessing their inherent risks adequately.

 

When looking at the actual SMR reporting, especially considering the instances of numerous suspicious matter reports submitted, the Report’s findings also seemed to suggest that mutual banks are failing to investigate suspicious activities from their end.

 

While the Report did find that the criminal threat environment was medium, the risks associated with the vulnerabilities in the mutual banking sector is high. The consequences of money laundering and the threat of the terrorist financing environment remains moderate.

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