The federal financial intelligence agency has ordered an external auditor to probe Afterpay’s compliance with money laundering and terrorism financing laws.
AUSTRAC said on Thursday that the scope of the audit will include the buy-now, pay-later company’s identification and verification of customers as well as its suspicious matter reporting obligations.
“The audit will help identify if Afterpay has developed and implemented the systems and controls it needs to ensure it complies with its obligations,” AUSTRAC chief executive Nicole Rose said.
“These laws are in place to protect businesses, the financial system and the Australian community from criminal threats.”
Ms Rose said AUSTRAC would work with Afterpay to mature and strengthen its compliance processes and staff training.
“But we will not hesitate to take action where an organisation is failing to appropriately protect itself and Australia’s financial system from criminal activity.”
The audit will be at Afterpay’s expense, with a preliminary report due to AUSTRAC within 60 days and a final version due within 120 days.
“We welcome the opportunity to continue to work closely and constructively with AUSTRAC and we will approach this formal process as an opportunity to ensure that our AML/CTF compliance is robust,” Afterpay said.
“We are committed to remaining focused on becoming better at what we do.”
Afterpay noted that customers use its service to budget for small value transactions, with an average value of $148 and a maximum value of $1,500.
It said it recognised that the buy now, pay later sector is a new sector for regulators and wanted to work constructively with AUSTRAC to develop compliance policies specific to its business.
Afterpay said it only received the order to appoint an auditor on Wednesday evening, but had been aware of AUSTRAC’s concerns earlier.
It said last Thursday that “as a scheduled part of our existing program, we are in the process of appointing a leading professional services firm to conduct an independent review of the design and operation of our AML/CTF framework to see if any further improvements or actions can or should be made.”
Afterpay has been one of the hottest stocks on the ASX200, having more than doubled since the start of the year.
But it has yet to turn a profit as it pursues growth, gaining 7,900 new customers a day so far this year.
Burdensome identity-verification requirements that makes the service more cumbersome to use would likely hurt its prospects.
Afterpay said it didn’t expect any impact to arise “on the way customers and merchants currently experience the Afterpay service”.
At 1039 AEST Afterpay shares were down $1.68, or 6.55 per cent, to $23.96.
Its rivals Zip Co, Splitit and FlexiGroup were also down, between 2.6 and 4.1 per cent.