Regulatory Focus on Competition and Innovation in Payments Services. Does Regulation Aimed at Encouraging Competition and Innovation Conflict with Requirements for KYC, AML, Etc.? Are the Two Sides Compatible? An Exploratory Case Study of Australia

39 Pages Posted: 23 Feb 2017

See all articles by Milind Sathye

Milind Sathye

University of Canberra - School of Accounting, Banking and Finance; University of Canberra - School of Business and Government

Geoffrey Andrew Nicoll

University of Canberra

Paula Chadderton

University of Canberra, Students

Date Written: February 20, 2017

Abstract

The main objective of the research is to determine whether Australian regulation, aimed at encouraging competition and innovation, conflicts with requirements for Know Your Customer (KYC), Anti-Money Laundering (AML) and privacy protection.

Given the convergence of the Australian regulatory frameworks with those in Europe and North America (and reference to Australia by regional partners such as New Zealand), there is value in assessing the scope and significance of regulatory conflicts in this country. There is also value in identifying differing perceptions on the part of its policymakers and administrators. To our knowledge, the issue has not been addressed in academic literature. The theoretical frameworks of ‘responsive regulation’ and ‘regulatory governance’ provide the lens for this exploratory research.

As a result of our investigations, a disjoint was noted between the authorities that implement the AML/CTF (anti-money laundering and counter terrorism financing) legislative regime and those that implement privacy, innovation and competition legislation, for example:

•While the AML/CTF legislation is an international regime; privacy, innovation and competition laws typically have a national jurisdiction, giving rise to a disjoint since such laws vary as per the imperatives of the jurisdiction.

•Within the AML/CTF itself the compliance may vary across jurisdictions, for example, the non-Islamic (or conventional) banks in Malaysia have very high compliance culture compared to the Islamic banks.

•Similarly, a jurisdiction may unfairly apply competition law. For example, China unfairly targeted foreign companies under competition law as per the 2014 report of the US China Business Council.

•Though the AML/CTF regime was created to prevent and control money laundering and financing of terrorism, jurisdictions have differing interpretations of what constitutes money laundering or what is considered to be actions leaning towards ‘terrorism’.

•As national legislation on anti-money laundering has been framed following the international standards set by the Financial Action Task Force (FATF), some jurisdictions are lax when it comes to implementation thereof.

•Reporting institutions in Australia felt that the high compliance cost of AML/CTF legislation affected their competitiveness.

The disjoint often creates a scenario of multiplicity in reporting to various authorities, affecting efficiency and effectiveness, and increasing costs to all players. These issues become particularly important as over 70% of the reporting entities under the AML/CTF regime are small business enterprises employing less than 20 people (AUSTRAC, 2013, p.2) and this disjoint, therefore, increases their costs unnecessarily. Consequently, countries need to do a thorough study of these competing legislations and ensure that the disjoint is avoided. However, though KYC and AML legislation will inevitably impact competition, it cannot be said that KYC/AML laws and competition laws per se are in conflict.

Currently we do not have an indicator/evidence-based system to measure the ground-level impact of implementing the AML/CTF regime, hence, there is a question mark over the efficacy of this elaborate regime ‘which undermines its credibility and relevance’ (Yepes, 2011, p.1). Industry, academics and the policy-makers need to develop key indicators that demonstrate that the regime has led to a reduction in money-laundering/terrorism financing offences or the magnitude thereof.  

Keywords: regulation, innovation, competition, payments,KYC, AML/CTF

Suggested Citation

Sathye, Milind and Nicoll, Geoffrey Andrew and Chadderton, Paula, Regulatory Focus on Competition and Innovation in Payments Services. Does Regulation Aimed at Encouraging Competition and Innovation Conflict with Requirements for KYC, AML, Etc.? Are the Two Sides Compatible? An Exploratory Case Study of Australia (February 20, 2017). SWIFT Institute Working Paper No. 2015-002, Available at SSRN: https://ssrn.com/abstract=2920462

Milind Sathye (Contact Author)

University of Canberra - School of Accounting, Banking and Finance ( email )

Canberra, Australian Capital Territory 2601
Australia

University of Canberra - School of Business and Government

Canberra, ACT 2601
Australia

Geoffrey Andrew Nicoll

University of Canberra ( email )

Canberra, Australian Capital Territory 2601
Australia

Paula Chadderton

University of Canberra, Students ( email )

Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
158
Abstract Views
1,128
rank
256,182
PlumX Metrics