Financial news wires are reporting that sell side broker Bell Potter is tipping the Afterpay Touch Group Ltd (ASX: APT) share price could hit $31.76 in the next 12 months if it's latest research note on the buy-now-pay-later provider is on the money.
This afternoon Afterpay shares are flat at $23.5o but have been on a wild ride over the last couple of weeks that included a $317 million capital raising, a huge sell down of shares by its founders, and a demand from AUSTRAC that it appoint auditors to review its compliance with AML / CTF laws.
Interesting, whether or not Afterpay fully complied with client identify verification obligations and suspicious transaction monitoring requirement rules largely contained in the AML / CTF Act 2006 was something I flagged on this website as a potential risk well over 18 months ago.
As a result of the regulator's demands, Afterpay has appointed consultants who will advise it what it needs to do operationally in order to comply with the laws and pass its upcoming audit.
Among other things the consultant will likely help it build an AML / CTF framework that includes written policies and procedures, usually imbedded with a risk control self assessment (RCSA) or similar.
In other words for an RCSA a AML or CTF risk is identified (i.e. the risk that a client is not ID'd properly) the control is identified (i.e. using a third party database, etc, like Veda to verify ID) and the risk given an inherent (pre-control) and post-control risk rating.
That way Afterpay can demonstrate to an auditor how it procedurally manages and meets all its AML / CTF obligations in one document or manual its responsible compliance staff follow.
Ideally of course the residual risk should be much lower than the inherent risk due to the controls / checks in place. Although this will not always be the case if there's no real control for example the two ratings may remain the same.
Afterpay will likely eventually present this to its auditors as evidence of how it monitors its compliance with AML / CTF laws.
Another issue Afterpay reportedly has problems with is its suspicious transaction monitoring and reporting requirements.
We've seen with the example of Commonwealth Bank of Australia (ASX: CBA) that failure to take these requirements sufficiently seriously can lead to catastrophic consequences after AUSTRAC slapped CBA with a $700 million fine that marked the beginning of the end for its ex-CEO Ian Narev.
Afterpay's consultants advising it on how to pass this part of the audit will also likely tell it to dump all its daily transaction data into something as simple as a spreadsheet and then filter for it certain 'suspicious transactions' daily in order to demonstrate it is monitoring transactions and capable of reporting them to AUSTRAC at fixed periods.
For example the spreadsheet could be filtered to show transactions over $10,000 or to show any transaction where a customer has bought the same product 10x over 10 consecutive days as this could be considered suspicious and reportable.
Of course the above is just my professional opinion, but I am almost certain this is what Afterpay will be advised to do and if it does so (with sufficient ways to verify ID whatever they may be) and hires enough knowledgeable or competent staff to run its AML / CTF framework it should have few problems with any audit.
Of course hiring more staff will cost it a few hundred thousand dollars more a year, alongside probably a few hundred thousand dollar bill from its advisers on how to pass the audit, but in the context of its cash flows or balance sheet this is not material.
As such I was hoping the share price might fall a lot further below $20 on the AUSTRAC worries so I could add to my tiny position, but for now that seems not to be.
