Austrac has released its report Securities & derivatives sector: money laundering and terrorism financing risk assessment.
Austrac assessed the overall money laundering and terrorism financing (ML/TF) risk for the securities and derivatives sector as “medium”. This rating is based on assessments of the criminal threat environment, vulnerabilities in the sector and the associated consequences.
Austrac says that Australia’s securities and derivatives sector attracts a wide range of criminal threats that often involve sophisticated tactics and methods. Serious and organised crime groups have exploited the sector to launder money and engage in market manipulation. The most common crime type reported in the sector is fraud; with money laundering, insider trading and market manipulation also posing a risk.
The level of reporting on terrorism financing was very low.
(Image Source: Austrac report. Click to enlarge)
The report summarises the sector’s vulnerabilities:
Four main products and services were identified in this assessment as vulnerable to criminal misuse:
• Accounts: The provision of general transaction and trading accounts provide the principal mechanism for moving funds in and out of the sector.
• Trading: Trading activity itself is vulnerable to criminal exploitation – in particular insider trading and market manipulation – primarily due to the large volume of trades conducted on a daily basis, and the speed with which trades often need to be executed.
• Off market transfers: The ability to transfer shares, and thereby value, from one person or entity to another without trading on an exchange.
• Third-party payments: Transferring funds to third parties is vulnerable to misuse if the third party is not known to the reporting entity – particularly if funds are sent overseas.
The trend towards customers increasingly using online services to open accounts and trade creates additional delivery channel challenges for reporting entities, particularly in relation to cybercrime.
The ability for cash to be placed into general transaction accounts and quickly moved to and between trading accounts, makes the sector vulnerable to money laundering. This risk is heightened when the transaction and trading accounts are held with different financial institutions because of the limited visibility both firms have over the customer’s financial activity.
