House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Justice and Customs Senator the Honourable Chris Ellison)

SCHEDULE 3 - RETAINING FINANCIAL TRANSACTION DOCUMENTS

This Schedule re-enacts the document retention provisions currently in the Proceeds of Crime Act 1987 (sections 76-78B) in the Financial Transaction Reports Act 1988 , which already contains record retention provisions.

Financial Transaction Reports Act 1988

Item 1 This item amends the definition of 'account' so that the definition does not apply to the document retention provisions (which are to be located in Part VIA of the Financial Transaction Reports Act 1988 ('FTR Act')). The document retention provisions contain a different definition of 'account'.

Item 2 This item adds a note at the end of the definition of 'account' to make readers of the FTR Act aware that the document retention provisions contain a different definition of 'account'.

Item 3 This item notes that the term 'customer-generated financial transaction document' is defined elsewhere in the Act.

Item 4 This item amends the definition of 'financial institution' in relation to the document retention provisions to include financial corporations within the meaning of the Constitution. This reflects the definition of 'financial institution' currently in the PoC Act 1987.

Item 5 This item notes that the term 'minimum retention period' is defined elsewhere in the Act.

Item 6 This item inserts Part VIA into the FTR Act. Part VIA contains the document retention provisions.

Division 1 - Meaning of key terms used in the Part

Proposed section 40C Definitions

This provision defines 'account' and 'financial transaction document' for the purposes of Part VIA.

'Account' is defined to include a safety deposit box and an arrangement or facility for a 'fixed-term' deposit.

'Financial transaction document' is defined broadly to capture any document which relates to a financial transaction carried out by the financial institution, and can include a document relating to the opening or closing of the account, as well as documents that relate to operating the account (for example withdrawal or deposit slips).

Proposed section 40D Meaning of customer-generated financial transaction document

This provision defines 'customer-generated financial transaction document' for the purposes of Part VIA.

A customer-generated financial transaction document is a document given to the financial institution by or on of behalf a person, which relates to one of the financial transactions specified in the definition.

Proposed section 40E Meaning of minimum retention period

This provision defines 'minimum retention period' for the purposes of Part VIA.

This is the period of time which financial institutions must retain relevant documents under the obligations set out in Division 2. The period varies depending on the nature of the document - for example, if the document relates to the opening of an account, the financial institution is obliged to keep that document for the duration of the life of that account, and for seven years following the closure of that account. Documents relating to the opening of a safety deposit box are required to be kept for the same period of time. However, all other documents are only required to be kept for the seven years following the relevant transaction, regardless of whether or not the account is still active at the end of that seven years.

Division 2 - Retaining financial transaction documents

Proposed section 40F Customer-generated financial transaction documents not relating to operation of accounts

This provision obliges financial institutions to retain the original of a customer-generated financial transaction document, which does not relate to the operation of an account, for the minimum retention period. For example, this may be a document relating to the opening or closing of the account, the transmission of funds between Australia and a foreign country by the financial institution on behalf of a person or a loan application. However, the financial institution is not obliged to retain cheques or payment orders.

If the financial institutions fails to retain the document, and the failure is not attributable to the institution being required by law to release the document before the end of the minimum retention period, the institution is guilty of an offence punishable by fine of 100 penalty units.

Proposed section 40G Releasing original documents if required by law

If the institution is required by law to release the document before the end of the minimum retention period and fails to keep a complete copy of the document until the end of the period or until the original is returned, the institution is guilty of an offence punishable by fine of 100 penalty units.

The financial institution is also obliged to maintain a register of original documents that it is required by law to release prior to the end of the minimum retention period. Failure to keep such a register is an offence punishable by fine of 100 penalty units.

Proposed section 40H Customer-generated financial transaction documents relating to operation of accounts

This provision obliges financial institutions to retain either a copy or the original of a customer-generated financial transaction document, which relates to the operation of an account, for the minimum retention period. However, if this document is a cheque or payment order, or relates to a single transaction not exceeding $200 (or higher amount it specified in the regulations) the financial institution is not obliged to retain it.

If the financial institutions fails to retain the document, it is guilty of an offence punishable by fine of 100 penalty units.

Proposed section 40J Retaining other financial transaction documents

This provision obliges financial institutions to retain either a copy or the original of a financial transaction document that is not a customer-generated financial transaction document, where retention of the document is necessary to preserve a record of the transactions concerned. The document must be retained for the minimum retention period. However, if this document is a cheque or payment order, or relates to a single transaction not exceeding $200 (or higher amount it specified in the regulations) the financial institution is not obliged to retain it.

If the financial institutions fails to retain the document, it is guilty of an offence punishable by fine of 100 penalty units.

Division 3 - Obligations relating to active ADI accounts transferred to another ADI

Proposed section 40K Transferor ADI must give documents to transferee ADI

This provision applies where there are live accounts being transferred from one ADI to another. An 'ADI' is an authorised deposit-taking institution, and is defined in section 3 of the FTR Act to mean a body corporate that is an ADI for the purposes of the Banking Act 1959 , the Reserve Bank of Australia, or a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution.

Proposed section 40K obliges the ADI which originally held the account to transfer over all the documents which is it required to retain by operation of Division 2 within a 120 day period beginning 30 days before the account is transferred.

If the ADI intentionally fails to give the relevant documents to the other ADI within the 120 day period, it is guilty of an offence punishable by a fine of 10 penalty units.

Proposed section 40L Compliant transferor ADIs released from retention obligations

This provision releases transferor ADIs who transferred the documents within the 120 day period from the retention obligations in proposed sections 40F and 40J.

Proposed section 40M Retention obligations of transferee ADIs

This provision obliges the transferee ADI to retain the documents transferred under proposed section 40K as if the minimum retention period applicable to the document is seven years after the closure of the transferred account. It also obliges the transferee ADI to retain the document as if the obligations in proposed sections 40F, 40H and 40J were in relation to that transferee ADI.

Division 4 - Obligations relating to closed ADI accounts transferred to another ADI

Proposed section 40N Transferor ADI may give documents to transferee ADI

Where an active account has been transferred from one ADI to another, and the transferor ADI has transferred documents to a transferee ADI pursuant to Division 3, the account with the transferor ADI will then become a closed account.

In those circumstances, this provision allows a transferor ADI to give the original and copies of a document that it is obliged to retain under Division 2 and which relate to the now closed account, to the transferee ADI.

For this to occur the two ADIs must agree in writing, and the document must be transferred within 120 days of the original transfer.

Proposed section 40P Compliant transferor ADIs released from retention obligations

This provision releases transferor ADIs who transferred documents under this Division within 120 days from the initial transfer of documents from the retention obligations in proposed sections 40F and 40J.

Proposed section 40Q Retention obligations of transferee ADIs

This provision obliges the transferee ADI to retain the documents transferred under proposed section 40K as if the minimum retention period applicable to the document is seven years after the closure of the transferred account. It also obliges the transferee ADI to retain the document as if the obligations in proposed sections 40F, 40H and 40J were in relation to that transferee ADI.

Division 5 - Miscellaneous

Proposed section 40R Retrieving documents must be reasonably practicable

This provision obliges financial institutions to store documents which it is obliged to retain under this Part in a way which makes the retrieval of those documents reasonably practicable.

Failure to so store documents is an offence punishable by a fine of 100 penalty units.

Proposed section 40S This Part does not limit any other retention obligations

This provision ensures that other retention provisions (for examples those in other parts of the FTR Act) still apply to financial institutions which are subject to Part VIA of the Act.

Proceeds of Crime Act 1987

Item 7 This item repeals Division 4 of Part IV of the PoC Act 1987, which contains the document retention provisions. The provisions governing the transition of the document retention obligations from the PoC Act 1987 to the FTR Act are set out in Schedule 7 of this Act.