Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2008 (No. 2)

Administered by Attorney-General's Department

Legislation au F2008L01285 Rules Not in force Legislative Instrument

Legislation content

 

Explanatory Statement – Anti-Money Laundering and Counter-Terrorism Financing Rules for issuing or selling a security or derivative

 

1. Purpose and operation of Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) for issuing or selling a security or derivative

 

Section 229 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) provides that the AUSTRAC Chief Executive Officer (CEO) may, by writing, make AML/CTF Rules prescribing matters required or permitted by any other provision of the AML/CTF Act.

 

These AML/CTF Rules relate to paragraph (d) of item 35 of table 1 in subsection 6(2) and subsection 247(3) of the AML/CTF Act. These Rules exempt certain types of services from the operation of the AML/CTF Act.

 

These AML/CTF Rules provide that a disposal of a security or derivative by a service provider acting on behalf of a client (item 33) would not also be caught by item 35.  This prevents both the agent and principal having to identify a person acquiring a security or derivative. These AML/CTF Rules also provide that a disposal or purchase of a security on a prescribed financial market and certain off-market issues of an interest in a managed investment scheme, are exempt from the operation of the AML/CTF Act. Due to the operation of such exchange markets (that is, electronic buy/sale orders), the issuer or seller would not have knowledge of the identity of the buyer or the person to whom the security or derivative is issued and so it is impractical to impose AML/CTF obligations.

 

2. Notes on sections and schedules

 

Section 1

 

This section provides that this Instrument is the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2008 (No. 2).

 

Section 2

 

This section states that the Instrument commences on the day after it is registered. 

 

Section 3

 

Schedule 1 inserts Chapter 21 into the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1).

 


Notes on paragraphs  

 

Paragraph 21.1

 

This paragraph states that these AML/CTF Rules are made under section 229 of the AML/CTF Act. Paragraph (d) of item 35 of table 1 in subsection 6(2) and subsection 247(3) of the AML/CTF Act permit the making of these Rules.

 

Paragraph 21.2

 

A service is captured by item 35 of table 1 in subsection 6(2) of the AML/CTF Act if it falls within the descriptions in paragraphs (a) to (d) inclusive, in that item.

 

This paragraph specifies a particular condition under paragraph (d) of item 35. The condition is that the service is not the disposal of securities or derivatives through an agent (who is doing so in the course of carrying on a business of disposing of securities or derivatives in the capacity of agent), within the terms of item 33 of table 1. In effect, if a service is one that is described by item 33 in the manner above, then item 35 would not apply to this service, as the service does not satisfy all the descriptions described in paragraphs (a) to (d) inclusive, of item 35.

 

Paragraph 21.3

 

These AML/CTF Rules provide that the following types of services or trades are exempt from the operation of the AML/CTF Act:

 

(a) trading in securities or derivatives on a domestic exchange market. Due to the operation of such exchange markets (that is, the electronic buy/sale orders), the issuer or seller would not have knowledge of the identity of the buyer or the person to whom the security or derivative is issued

 

(b) certain off-market issues of an interest in a listed or quoted managed investment scheme. These off-market issues relate to fundraising, public offerings, rights issues or distribution reinvestment plans. The issued interest is to be quoted on a prescribed financial market.

 

The quotation of securities such as units in a managed investment scheme and an option to acquire an interest in a managed investment scheme also includes stapled securities.

 

Paragraph 21.4

 

This paragraph provides relevant definitions for ‘dividend or distribution plan’, ‘initial public offering’, ‘prescribed financial market’ and ‘rights issue’.

 

As at the date of these AML/CTF Rules, for the purposes of ‘prescribed financial market’ the following market operators are prescribed (see section 9 of the Corporations Act 2001 and regulation 7.1.01 of the Corporations Regulations 2001): Australia Pacific Exchange Limited, Australian Stock Exchange Limited, Bendigo Stock Exchange Ltd and National Stock Exchange of Australia Limited.

 

3. Legislative instruments

 

The AML/CTF Rules are legislative instruments as defined in section 5 of the Legislative Instruments Act 2003.

 

4. Likely impact

 

These AML/CTF Rules will have a favourable impact on any reporting entity that provides a designated service under item 35 of table 1 in section 6 of the AML/CTF Act in relation to a service described in section 1 of this explanatory statement.

 

5. Assessment of benefits

 

Certain entities will benefit from being exempted from the operation of the AML/CTF Act.

 

These AML/CTF Rules provide that an issue or sale of a security or derivative to a person in circumstances described above will not be covered by item 35 if it is a service that is described in item 33. Without this carve out, a disposal of a security or derivative may be caught by both items 33 and 35 in some circumstances and there would be an unnecessary duplication of effort. Where securities and derivatives transactions take place on market, it will be impossible for the provider of the service to comply with AML/CTF obligations. These transactions take place electronically and the identity of the buyer or person to whom the security or derivative is issued will be unknown. The burden in applying obligations under the AML/CTF Act would far outweigh any AML/CTF benefits. The AML/CTF Rules also exempt certain off-market issues of interests in a managed investment scheme which would occur just prior to listing of those interests on market. These Rules reduce the regulatory impact of the AML/CTF Act.

 

6. Consultation

 

AUSTRAC has consulted with the Office of the Privacy Commissioner, the Australian Customs Service, the Australian Federal Police, the Australian Taxation Office and the Australian Crime Commission in relation to these AML/CTF Rules.

 

AUSTRAC also published drafts of these AML/CTF Rules on its website for public comment.

 

7. Ongoing consultation

 

AUSTRAC will conduct ongoing consultation with stakeholders on the operation of the AML/CTF Rules.

Overview

The Anti-Money Laundering and Counter-Terrorism Financing Rules for issuing or selling a security or derivative, established under section 229 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), were introduced to address the impracticality of imposing anti-money laundering and counter-terrorism financing obligations on entities involved in certain securities and derivatives transactions. These rules, made by the AUSTRAC Chief Executive Officer, exempt specific types of services from the operation of the AML/CTF Act, thereby reducing the regulatory burden on entities. The rules were enacted to ensure that both the service provider and the client are not unnecessarily burdened by compliance requirements when securities and derivatives are traded electronically on prescribed markets or in certain off-market transactions, where the identity of the buyer remains unknown. This legislative measure was developed following consultations with various government agencies and the public, ensuring a balanced approach to compliance and market efficiency.

Scope and Application

The Anti-Money Laundering and Counter-Terrorism Financing Rules for issuing or selling a security or derivative, established under section 229 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, aim to exempt specific financial services from the broader requirements of the AML/CTF Act. These rules apply to service providers who act as agents in the disposal of securities or derivatives, ensuring that neither the agent nor the principal is required to identify a person acquiring a security or derivative. The rules also exempt trading in securities or derivatives on domestic exchange markets and certain off-market issues of interests in managed investment schemes from the operation of the AML/CTF Act. These exemptions are justified on the basis that such transactions occur electronically, making it impractical for issuers or sellers to identify the buyers or recipients, thereby rendering the application of AML/CTF obligations unfeasible. The rules are applicable nationally and are designed to reduce unnecessary regulatory burdens on reporting entities that provide designated services, while still maintaining the overall integrity of the AML/CTF framework.

Key Provisions

The Anti-Money Laundering and Counter-Terrorism Financing Rules for issuing or selling a security or derivative, as outlined in Section 229 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), mandate that the AUSTRAC CEO can, by written directive, establish rules that either require or permit actions in accordance with other provisions of the AML/CTF Act. These rules, detailed in paragraphs (d) of item 35 of table 1 in subsection 6(2) and subsection 247(3) of the AML/CTF Act, exempt specific services from the scope of the AML/CTF Act. For instance, they clarify that when a service provider, acting as an agent for a client, disposes of a security or derivative (as per item 33), this action is not also subject to item 35, thus preventing the agent and principal from both having to identify the person acquiring the security or derivative. Furthermore, the rules exempt trading in securities or derivatives on prescribed financial markets and certain off-market issues of interests in managed investment schemes from the AML/CTF Act. The obligations under these AML/CTF Rules necessitate that certain entities, particularly those providing designated services, comply with specific conditions to benefit from the exemptions. Service providers must ensure that their transactions involving securities or derivatives are conducted in a manner that aligns with the exemptions provided, such as ensuring that the disposal of securities or derivatives is not done in a way that would also classify it under item 35. This involves careful documentation and record-keeping to demonstrate compliance with the AML/CTF Act's exemptions. Additionally, entities must be aware of and adhere to the definitions and descriptions provided within the rules, such as understanding what constitutes a "prescribed financial market" and the specific types of managed investment schemes that are exempt. Failure to comply with these AML/CTF Rules can result in significant consequences. The AML/CTF Act provides for both civil and criminal penalties for non-compliance. Civil penalties can include substantial fines, while criminal penalties may involve imprisonment. The specific penalties are determined based on the severity of the breach and the intent behind it. For instance, knowingly or recklessly contravening the AML/CTF Rules can lead to more severe penalties compared to inadvertent breaches. Additionally, entities may face legal action that could result in court orders for restitution or further penalties to comply with AML/CTF obligations. In summary, the Anti-Money Laundering and Counter-Terrorism Financing Rules for issuing or selling a security or derivative provide specific exemptions from the AML/CTF Act for certain services, ensuring that entities are not unduly burdened by overlapping obligations. Compliance with these rules is mandatory for entities seeking to benefit from the exemptions, and non-compliance can lead to significant civil and criminal penalties.

Legal classification tags

Area of Law
Anti-Money Laundering and Counter-Terrorism Financing
Instrument
Regulation
Concepts
Definitions & Interpretation
Exemptions & Exclusions
Regulatory Standards

Interactions

Authorises

All Versions

Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.