The Afterpay Touch Group Ltd (ASX: APT) share price is storming higher on Monday morning.
At the time of writing the payments company's shares are up over 8% to $33.03.
Why is the Afterpay share price storming higher?
Investors have been buying Afterpay's shares after it released an update on its final Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) audit.
According to the release, the final audit report from external independent auditor Mr Neil Jeans has been received and provided to AUSTRAC in accordance with its notice.
The report refers to matters of historic non-compliance by Afterpay and makes recommendations in relation to Afterpay's ongoing AML/CTF compliance. It also states that the majority of these matters have now been addressed, with the remainder covered in its recommendations.
Afterpay advised that it fully accepts and is actioning all recommendations from the Independent Auditor.
What were the findings?
Here is a summary of the findings taken from the report:
- Governance and Oversight – over the course of Afterpay's evolution from a start up to an ASX 100 company, Board and Senior Management oversight and governance has matured significantly. There is now an appropriate level of awareness and engagement.
- Understanding Risk – Afterpay is a low risk business in regards to its vulnerability to be used for money laundering or terrorist financing. Notwithstanding this, the risk controls in place must remain commensurate with business growth. Afterpay must enhance its existing controls to identify Politically Exposed Persons (PEPs) and the risk they may pose. It is noted that Afterpay have commenced a project to address this issue.
- AML/CTF Program – Afterpay's AML/CTF Program has also evolved over time and is now appropriately aligned to the AML/CTF Act and Rules. Afterpay commenced to provide designated services from February 2015. The first AML/CTF Program was finalised in June 2016.
- Key AML/CTF Controls – Based upon legal advice in 2016, Afterpay initially focused its AML/CTF controls upon merchants. Afterpay's current AML/CTF controls are more appropriately focused on consumers, given the Designated Service Afterpay provides.
In light of this, the auditor made six recommendations for the company to consider. They are as follows:
- Board and Senior Management oversight and governance of compliance with AML/CTF Act and Rules – The auditor recommends that the Afterpay board continues to maintain its current level of Board and Senior Management oversight of AML/CTF compliance as the business grows.
- Low Risk Designated Services Exemption – In the auditor's opinion, Afterpay's service poses a low ML/TF risk. As such, it encourages Afterpay to engage AUSTRAC regarding its buy-now pay-later service being formally designated as low ML/TF risk in the AML/CTF Rules.
- Compliance with applicable customer identification procedures – Another recommendation is for Afterpay to engage with AUSTRAC about its historic approach to consumer identity verification, which was outside of the safe harbour set out in the AML/CTF Rules.
- Compliance with politically exposed person (PEP) identification and risk management requirements – Afterpay should ensure it complies with all of Parts 4.1.3 and 4.13 of the AML/CTF Rules regarding the identification and management of the risk of politically exposed person (PEPs) using the service.
- Compliance with ongoing customer due diligence requirements – Afterpay should review the application of its enhanced customer due diligence procedures to ensure the processes are applied proportionately with regard to the ML/TF risk posed by the consumer.
- Suspicious matter reporting content – Afterpay should continue to evolve its procedures to ensure all actionable information or intelligence available to it is included in suspicious matter reports submitted to AUSTRAC.
The auditor concluded: "Whilst the actual money laundering and terrorism financing risks inherently faced by Afterpay's business are low, Afterpay's increasing transaction volumes and business growth heighten the risk of misuse of Afterpay's buy-now pay-later service. As a result, the Board should maintain a focus on AML/CTF compliance and ensure AML/CTF managers continue to be proactively supported and appropriately equipped to deal with these challenges."
