Ever wondered why you need to provide certain types of ID (that’s the one acronym we hopefully don’t need to define for you!) when applying for a loan? Also wondered why lenders ask lots of questions about who you are even when they have your ID? There are a few reasons why and they are broadly referred to as AML/CTF and KYC requirements. These requirements are relevant to every loan which means it’s vital to know what the acronym stands for as well as understand the ins and outs of each and what this means for you.
What is AML/CTF and KYC?
AML/CTF stands for Anti Money Laundering and Counter Terrorism Financing and KYC stands for Know Your Customer. Any financial institution that issues credit is required to comply with the AML/CTF laws and should have their own AML/CTF program in place. KYC is the process that institutions undertake to verify that their clients are who they say they are and is included in the AML/CTF program. AML/CTF and KYC are all ways in which a financial institution ensures that it can identify and reduce the risk of fraud and criminal activity.
Why is it such an important process?
AUSTRAC is the government body that regulates the AML/CTF Act. It isn’t just for fun that your finance institution is asking for all sorts of identification, they are required to by law. In the bigger scheme of things, the AML/CTF Act and those institutions required to abide by it are helping to prevent money laundering and the financing of terrorism. As part of their AML program, your lender is also responsible for making sure they know who they are dealing with. Simply getting a copy of a driver’s licence is no longer acceptable in this day and age.
What does this mean for you?
Depending on the structure under which you are financing, your lender will need to identify each borrowing structure and sometimes each guarantor. For an individual this could mean that not only do you need to provide your drivers licence, but it may need to be certified by a person who is qualified to do so for example a Medical Practitioner, Justice of the Peace or an Employee of Australia Post. Not only is it required that lenders collect identification but that they verify information such as your full name, residential address and date of birth. This verification can be achieved by comparing different types of identification, checking against databases such as the land titles office or ASIC records.
Financing under a company
If you are financing under a company, not only will the company need to be identified but the beneficial owner of the company will also need to be identified. A beneficial owner is someone that holds 25% or more shareholding in a company. The most common way to identify a company is through an ASIC company search that provides information such as directors, shareholders and any adverse financial information. This search will help determine who the individual beneficial owners behind the company are. Even if a beneficial owner has little or nothing to do directly with the finance agreement of the company, it will still mean that they will need to be identified purely because they are a beneficial owner of the company borrower.
To identify a trust, the original trust deed is used and yes, if it is a copy it will need to be certified. The trust deed will contain details around who the trustee is as well as who the beneficial owner/s of the trust are. Similarly to a company, the purpose of identifying a trust is to determine who the controlling individuals are behind it. These individual beneficial owners will need to be identified.
So next time your lender asks you for copies of your license, trust deeds or information on beneficial owners, it is because they are required to by law but also because they just want to make sure they know exactly who they are dealing with.
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