The Afterpay Touch Group Ltd (ASX: APT) share price has been volatile recently as its AUSTRAC audit verdict continues to hang Sword of Damocles-like above the consumer credit provider's head.
According to a July 29 2019 announcement out of Afterpay the interim audit report is due to be submitted to AUSTRAC today September 24 with the final audit report due by November 23 2019.
In these circumstances an interim audit report generally sets out an audit's preliminary findings prior to the final audit report concluding whether or not any finding have been fixed or have a clear and measurable route to being fixed.
As such the preliminary report could find that Afterpay has been in non-compliance with any of its KYC/ AML obligations under the AML/CTF Act or other general financial services laws in Australia.
All eyes will be on any findings around non-compliance on client ID verification procedures or due diligence, suspicious transaction reporting, and AML/ CTF Program obligations.
Even if Afterpay is found to be in breach of any obligations it has the option to explain to AUSTRAC how it intends to comply with any audit findings prior to the due date for the final audit.
As I've written before the suspicious transaction reporting and AML/CTF obligations should be easy to meet even if it didn't previously.
It will simply involve taking on a little more cost via extra staff to follow via straightforward policies any professional consultant could lay out in 'AML/CTF compliance for dummies' terms if necessary. Not that I'm suggesting Afterpay staff are dummies.
However, how the auditor and AUSTRAC interprets its compliance with KYC or client ID verification procedures as a low risk provider is the big question.
The worst case scenario is that Afterpay is forced to update its client ID procedures retrospectively which could be an administrative nightmare given how many Australian end users it has.
The best case scenario is that the auditor finds it has largely been in compliance given it has less onerous ID obligations as a low-risk service provider.
So while I expect Afterpay will escape the audit unscathed the risk warning is that AUSTRAC has a track record of unpredictability as a regulator that likes the limelight. As such it's not impossible it seizes on any non-compliance findings around client ID verification with drastic demands.
Recent evidence of this includes AUSTRAC's explosive decision to fine Commonwealth Bank of Australia (ASX: CBA) $700 million for suspicious transaction matter reporting failings in a move that even led to the downfall of its last CEO.
While just today the Nine Press is reporting that it's targeting high profile payments business PayPal for potential compliance breaches.
Afterpay shares are down 1.6% to $31.72 just after lunchtime today.
