FMA's review of AML/CFT notes 'continued low level' of reporting by NZ firms

Thursday 8th December 2016

The Financial Markets Authority says it is "particularly concerned" about continued low levels of reporting by New Zealand financial services firms of suspicious transaction reports under requirements of the Anti-Money Laundering and Countering Financing of Terrorism Act.

The FMA is one of three supervisors under the act, with about 800 reporting entities (REs) under its watch, including financial advisers, issuers of securities and derivatives, fund managers, brokers, equity crowd-funders and peer-to-peer lenders. Its latest report says REs have made some progress in meeting their obligations but had work to do.

"We are particularly concerned about the continued low level of filing of suspicious transaction reports by REs," it said. "We plan to address this in 2017 by conducting training jointly with the Financial Intelligence Unit" of the NZ Police.

The regulator also noted a continued lack of effort in training staff to detect and prevent money laundering and terrorist financing activities and variance in the quality and way REs conduct due diligence on high-risk customers.

In May the FMA issued a formal warning to brokerage Craigs Investment Partners "for failing to conduct adequate enhanced due diligence, and failing to terminate its business relationship with a client when it had been unable to complete the required level of customer due diligence on that client." The warning related to conduct in 2014 and since then the firm had taken steps to significantly improve its AML/CFT compliance programme, reducing the chances of similar breaches occurring in the future, the FMA said.

The regulator carried out a number of targeted visits to REs in the wake of the release of the Panama Papers this year to check their policies and processes for identifying higher-risk customers including those that predated the introduction of the AML/CFT Act in June 2013. Its expectation is that high-risk customers are reviewed more frequently and flagged for ongoing monitoring.

The on-boarding of high-risk customers must be signed off by management and include a written process. Customers with no apparent commercial connection with business in New Zealand should be treated as high risk, it said.

REs needed to, as a minimum, develop a plan to identify high-risk customers and bring their documentation up to current standards, it said.

The latest report repeats concerns the FMA flagged in its 2015 report, finding some REs had monitoring systems that weren't fit for purpose, or were manual or infrequent; they didn't have written processes; there was a lack of reports on suspicious transactions and some showed a lack of knowledge of existing customers. There were still instances where REs had difficulties identifying the source of a customer's wealth or funds.

The government is aiming to widen the net for the AML/CFT regime to include lawyers, conveyances, accountants, real estate agencies, and dealers in high-value goods. A consultation paper is currently being reviewed by the Cabinet, the FMA said.

Australia remained the biggest home for non-resident customers, followed by the UK, the US and Singapore. China came in at sixth.

BusinessDesk.co.nz

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