Reliance under the AML/CTF Act: Before you sign a reliance agreement

We’ve recently received enquiries from practitioners asking the same question: “A local real estate agent has asked me to sign a reliance agreement. Should I?”

The short answer is that the decision is not whether the real estate agent has completed applicable customer identification procedures (ACIPs). It is about whether your practice should rely on them. That remains a matter for your practice’s AML/CTF program, documented risk assessment and professional judgment.

At first glance, the request seems sensible. If one reporting entity has already completed ACIPs, why duplicate the work?

Reliance agreements or arrangements may reduce duplication, streamline customer onboarding and avoid multiple reporting entities collecting the same identification information during a single transaction. That operational efficiency explains why many solicitors are now receiving requests to enter reliance arrangements.

The AML/CTF framework contains several reliance pathways. Section 37A provides for standing written reliance arrangements. Section 38 permits case-by-case reliance without a standing agreement. In addition, Rules 6-32 and 6-33 establish a specific conveyancing model for property transactions. Understanding which pathway is proposed is the starting point in determining whether reliance is appropriate.

None of these pathways transfers legal responsibility. If the ACIPs later prove deficient, the reporting entity that chose to rely remains responsible for demonstrating that its reliance was reasonable in the circumstances.

A section 37A agreement permits reliance; it does not require reliance in every matter. The reporting entity must still determine whether reliance is appropriate under its AML/CTF program.

Should you rely?

This distinction is important. Although the client and transaction may be the same, the solicitor and the real estate agent perform different designated services and engage with the transaction in different ways. Two reporting entities involved in the same transaction will not necessarily acquire the same knowledge about the client. Each receives different instructions and may identify different risk indicators.

Accordingly, the question is not whether the agent’s ACIPs are “good enough” in the abstract, but whether reliance on those ACIPs is sufficient to meet the solicitor’s own statutory obligations.

Ultimately, deciding whether to rely requires the solicitor to exercise independent professional judgment about whether another reporting entity’s ACIPs are sufficient for the practice to discharge its own statutory obligations.

The fact that another professional proposes a reliance arrangement does not itself justify reliance.

The decision must remain one for the solicitor, exercised independently in accordance with the practice’s AML/CTF program.

Acting as the provider

Practitioners should also consider the reverse scenario. Rather than deciding whether to rely on another reporting entity’s ACIPs, should the practice instead be the provider of ACIPs under a reliance arrangement?

Because the regime is new for many legal practices, and further AUSTRAC guidance and industry practice will continue to develop, practitioners should be cautious about entering reliance arrangements simply for convenience. In many matters, it may be more prudent for a practice to undertake and document its own ACIPs unless and until it is satisfied that reliance is clearly contemplated by its AML/CTF program, that the counterparty’s controls are understood, and that the practice can evidence why reliance is appropriate. Reliance should not be used as a way to avoid developing the practice’s own understanding of its AML/CTF obligations.

A reliance agreement may be suitable in some matters, but it should not be treated as a client-service add-on or referrer convenience. Before doing so, the practice should consider whether it is authorised and prepared to disclose the relevant information, whether any necessary client authority has been obtained, whether confidentiality and any issues concerning legal professional privilege have been considered, what records will be provided, how quickly they can be provided, and whether the arrangement creates any unintended professional, privacy or commercial risk. A solicitor whose ACIPs are relied upon by another reporting entity is not deciding whether that entity should rely; that decision remains for the relying entity. However, the solicitor should still ensure that any information shared is accurate, limited to what is required, and consistent with the practice’s AML/CTF program and professional obligations.

Practitioners should also consider professional indemnity insurance before entering into a reliance agreement. The Lexon Master Policy responds to civil liability arising from claims connected with the provision of “Legal Services”, being work done or business transacted in the ordinary course of legal practice. A reliance agreement, particularly where the law practice acts as Provider and gives another reporting entity Reliance Packs, service-level commitments, warranties or indemnities, may raise questions about whether the conduct is properly characterised as legal services or a separate compliance/data service. The policy also contains exclusions relevant to non-legal services and contractual warranties, guarantees and indemnities. Practitioners should therefore not assume that liability under a reliance deed will necessarily be covered, and should consider the policy wording and, where appropriate, seek confirmation or guidance before signing.

The following questions may assist when considering whether to enter into, or rely under, a reliance arrangement.

Counterparty

• Would I make the same decision if this request came from someone other than a valued referrer?
• Is the other entity a reporting entity for the relevant designated service?
• Do our respective risk profiles, services and customer interactions support reliance in this matter?
• What designated service is the other entity providing?
• What ACIPs has the other entity undertaken?
• Are those ACIPs consistent with the requirements of the AML/CTF Act, the AML/CTF Rules and our own AML/CTF program? 
• Does the other entity have appropriate CDD, escalation and record-keeping arrangements in place?

Records

• Can we access the relevant KYC information and Verification Data before we provide the designated service, or within any permitted delayed CDD period?
• Who is responsible for keeping which records?
• Will the underlying identification records be available promptly if requested?
• How will those records be obtained, stored and retained?
• Does the proposed arrangement ensure continuing access to the records?

Practice

• Does our AML/CTF program contemplate reliance?
• Who is responsible for what under the agreement?
• Has the practice identified when reliance is appropriate—and when it is not?
• Who within the practice approves reliance?
• Would undertaking our own ACIPs be simpler or more defensible in this matter?

None of these questions has a prescribed answer. Their purpose is to assist the practitioner in determining whether reliance is appropriate for the particular matter.

The reliance provisions are intended to facilitate efficient compliance while preserving each reporting entity’s responsibility for compliance. They are not intended to displace the exercise of documented risk assessment and independent professional judgment.

The Act provides a limited safe harbour from liability for isolated deficiencies in certain circumstances. Broadly, this includes a written reliance arrangement, appropriate due diligence before entering into the arrangement, and ongoing assessment of whether the arrangement remains appropriate. That protection does not extend to serious or systemic non-compliance.

A reliance agreement is only as useful as the systems, controls and records sitting behind it. If the other reporting entity’s ACIPs are incomplete, poorly implemented or inconsistently documented, the relying practice may be exposed to the risk of repeated deficiencies. Before relying, the practice should be able to point to the evidence it considered and explain why it had reasonable grounds to regard the arrangement as appropriate.

Practitioners should also be aware that a reliance arrangement is not a “set and forget” exercise. Section 37B requires the relying entity to review the continuing appropriateness of the arrangement, including the periodic reviews prescribed by the AML/CTF Rules and whenever relevant circumstances materially change. Those review obligations should be embedded within the practice’s AML/CTF program from the outset.

Reliance arrangements are intended to reduce unnecessary duplication, not replace independent decision-making. Whether your practice chooses to rely on another reporting entity’s ACIPs, or allows another reporting entity to rely on its own ACIPs, the decision should reflect the practice’s AML/CTF program, documented risk assessment and the circumstances of the matter.

Addendum: ARNECC VOI is not AML/CTF reliance

Practitioners dealing with conveyancing matters should be careful not to conflate AML/CTF customer due diligence with verification of identity obligations under the ARNECC Model Participation Rules. AML/KYC onboarding information may assist with VOI, but it does not automatically satisfy a practitioner’s separate obligation as Subscriber to take reasonable steps to verify identity, retain supporting evidence and make the required certification.

A practitioner may use an agent to undertake VOI, including through an appropriate identity verification process, but that is not the same thing as AML/CTF reliance under section 37A. If the practitioner wishes to obtain the benefit of the ARNECC Verification of Identity Standard being deemed to constitute reasonable steps, the agent should be appropriately appointed and directed to apply that Standard. If a real estate agent or other person is used outside that framework, the practitioner must still be able to demonstrate that reasonable steps were taken and should not treat that person’s involvement as equivalent to an AML/CTF Provider under a reliance agreement.

The practical point is that a real estate agent assisting with VOI is not, for that reason alone, the Provider under an AML/CTF reliance agreement. Conversely, an AML/CTF reliance arrangement does not automatically discharge the practitioner’s VOI obligations. These issues may overlap operationally, particularly where firms use AML/KYC onboarding tools in conveyancing, but they should be documented and assessed separately.