Banks and other financial institutions are exposed to several key areas of risk in relation to modern slavery. These risks arise mainly from purchasing goods and services from third parties and being associated with customers’ illegal activities.
The Australian Commonwealth Government plans to introduce a Modern Slavery Act in Australia, similar to the UK Modern Slavery Act, which will impose a new Australian regulatory requirement on large businesses, including financial institutions, to report on modern slavery risks in their operations and supply chains.
The legislation will not require financial institutions to report on risks relating to their customers. But criminal activity by customers remains a significant area of risk for financial institutions, particularly large banking groups with retail operations in multiple jurisdictions. Reflecting this concern, some banks are reporting under the UK Modern Slavery Act on what they are doing in this area, as part of an holistic approach to tackling modern slavery.
On 16 August 2017, the Minister for Justice Michael Keenan announced that the Commonwealth Government proposes to introduce legislation to require large businesses to report annually on their actions to address modern slavery. This announcement reinforces Australia’s commitment to having one of the strongest responses to modern slavery in the world.
The Commonwealth Government proposes that businesses with revenue of at least AU$100m will be required to report annually on their efforts to eradicate modern slavery in their operations and supply chains. The legislation will apply to business across all industries and sectors, including financial institutions.
The risk of modern slavery occurring in the operations of financial institutions is generally considered low, mainly because of the use of a skilled, professional workforce. However, all financial institutions have supply chains, which carry greater risk, and financial institutions globally are also under pressure to address modern slavery risks in their lending and finance activities.1
Increased scrutiny of customer operations and collaboration with law enforcement agencies are being strongly encouraged. In Australia, financial institutions providing designated services are already subject to reporting requirements under existing anti-money laundering and counter-terrorism legislation. The introduction of a Modern Slavery Act may renew the focus on their role in tackling slavery and human trafficking.
Here, we outline what the reporting requirement under a Modern Slavery Act is likely to involve and how Australian banks and other financial institutions can prepare for it. First, we take a look at some facts and figures and examples of sectoral risks.