Anti-money laundering (AML) rules are the latest to ease as the government acts to keep the NZ financial industry operating during the coronavirus lock-down period.
After putting withdrawing many financial regulatory roadblocks in recent days, the three government agencies in charge of the AML regime issued a joint statement last week how customer due diligence (CDD) can function at Alert Level 4.
The Department of Internal Affairs, the Financial Markets Authority (FMA) and the Reserve Bank of NZ (RBNZ) together police AML rules in their respective domains.
In the tripartite statement last week, the regulators said: “The supervisors understand that, in the current situation, it may be more difficult for reporting entities to carry out ongoing CDD as per their usual processes.
“Instead, reporting entities should apply a risk-based approach. This may mean, for example, that reporting entities accept scanned copies of documents as an interim measure, with the originals to be sighted at a reasonable later time (upon lifting of alert levels).”
The release also sets out how financial entities can sign on new clients in the shutdown era by postponing certain identification procedures.
“This means a new business relationship with a customer could be established and funds credited into a facility, provided that verification is completed as soon as practicable after COVID-19 Alert Levels have been lifted,” the statement says.
AML compliance emerged as one of the most time-consuming and risk-prone duties for financial services firms since the rules came into force across many jurisdictions over the last decade – mostly at the insistence of US authorities – to combat funding of terrorism and crime.
Despite the loosening-up of AML restrictions, the NZ regulatory statement says businesses caught by the rules (which now include lawyers, accountants and real estate agents among others) must still act with caution.
“It is also important to be aware that in this challenging environment, reporting entities should remain vigilant as criminals may try to target their products and services,” the release says. “Reporting entities must continue to effectively manage money laundering and financing of terrorism risks, and report suspicious activities where required to do so in accordance with the AML/CFT Act.”
Sighting physical documents is proving to be an issue in other non AML-related processes such as sourcing JP approvals for KiwiSaver hardship grants.
Some providers are introducing work-arounds such as online documentation sign-offs by JP while government and industry organisations, including the Financial Services Council (FSC), scramble to resolve the problems.
“We are also starting to see a similar issue in the insurance industry, where getting medical certification for claims and to underwrite new business is proving difficult as the medical profession focuses on Covid-19,” the FSC noted last week.
“We are working hard across the industry with members, government and regulators to find a practical solution to these issues.”
As flagged here, the government also confirmed last week it would push out the Financial Services Legislation Amendment Act (FSLAA) start date to next March while halting most other regulatory and legislative works-in-progress.
Nonetheless, the FMA says FSLAA transitional licensing “will remain open”.
“At present, our licensing team is engaged in dealing with any urgent matters relating to the COVID-19 Level 4 alert, however, applications will be processed as resources are available and in time for the start date of the new regime in early 2021,” the regulator says.
Notably, the select committee scrutinising the Financial Markets (Conduct of Institutions) Amendment (COFI) legislation – chaired by Labour MP, Deborah Russell – extended the submission deadline by a month to April 30 after initially rejecting a delay request.
The FMA has also clarified the reporting duties for managed investment schemes (MIS) in light of a two-month reprieve for lodging audited financials.
Regardless of the extension, the FMA has composed a long list of duties for MIS firms and directors to “consider”, including: “Assessing and documenting the impact of COVID-19 on the entity’s ability to continue as a going concern and the overall prospects of the entity.”
Finally, the regulator has supplied a list of 19 financial services sectors deemed as “essential” under current emergency conditions, ranging from banks to EFTPOS terminal manufacturers and financial advisers.
“Financial advice is not covered by the definition from the Government of workplaces/offices that need to remain open, but it clearly remains an important service,” the FMA note says. “Our expectation is that most financial advisers should be able to work from home, with no need to staff offices.”