The government has opened up new draft anti-money laundering (AML) regulations for last-minute tweaks ahead of implementation expected later this year.
Following a Ministry of Justice (MOJ) review completed last year, the government has largely signed-off on “regulatory package, [and] the legislative and policy parameters” for new rules poised to impose a raft of extra responsibilities on a wide range of AML reporting entities.
But the MOJ consultation launched at the beginning of March provides an opportunity to quibble about the finer details of the proposals put in place to comply with standards established by the Financial Action Taskforce (FATF), the global AML watchdog.
“We are mainly interested in whether the wording of the draft regulations is sufficiently clear and meets the intended purpose of the regulations, or how it could be made clearer, and whether anything may create unintended consequences due to the way it is drafted,” the MOJ document says.
Among a list of more than 70 amendments or additions to the AML-Countering Financing of Terrorism rules, the draft regulations set out several more intense customer due diligence (CDD) requirements.
For instance, firms captured by the AML regime will have to dig deeper into the business ownership structures and underlying beneficiaries of trusts in CDD processes for high-risk clients.
Furthermore, the draft regulations require reporting entities to “explicitly” risk-rate new customers and regularly update CDD information on existing clients.
“While businesses must review CDD information when undertaking ongoing CDD and account monitoring, there is no explicit requirement to update a customer’s records during this process (outside of situations when enhanced CDD is triggered),” the draft exposure document says. “Similarly, there is no explicit requirement to consider when CDD was last conducted. Without updating relevant customer records, businesses may not have a full understanding of their customer’s identity and risk profile. This does not comply with the FATF Standards.”
The updated regulations also set out more detailed ‘enhanced’ CDD procedures for clients flagged as high-risk. For example, under current enhanced CDD rules AML-reporting entities “are limited to obtaining and verifying information regarding source of wealth OR funds” despite important differences between the two features.
“The lack of differentiation means enhanced CDD efforts may not necessarily be directed at which of the two, or both, is most relevant to mitigate the risks,” the consultation document says. “As a result, funds in control of a high net wealth individual might be automatically assumed to be legitimate, regardless of the specific circumstances in a particular transaction.”
Reporting entities will also be obliged to pursue “any additional enhanced customer due diligence measures” where appropriate above the current stipulations to verify either source of wealth or funds.
Many of the AML breaches in the financial services industry to date have hinged on CDD infringements. Over the last few years the Financial Markets Authority (FMA) has pinged several brokers, derivatives traders, investment platforms, banks and others for AML rule-breaking, including Craigs Investment Partners, Tiger Brokers, CLAS Premium, InvestNow and Sharesies.
The FMA is one of three AML policing agencies along with the Department of Internal Affairs and the Reserve Bank of NZ.
Introduced in 2009, the AML-CFT legislation first applied to banks and financial intermediaries (including advisers) before expanding to other professions such as accountants, lawyers, real estate agents and pawnbrokers.
Since 2009 a number of new potential AML holes have appeared in the global financial fabric including ‘virtual asset service providers’ – or VASPs – that deal in cryptocurrencies, for example.
The upgraded NZ AML regime will cover the entire VASP universe (as defined by FATF) as well as lowering the reporting bar for digital asset transactions to $1,000 from the previous $10,000.
And in an impressive feat of bureaucratic linguistics, the MOJ document unveils a candidate for acronym of the year with POWBATIC – long for ‘person on whose behalf a transaction is conducted’.
Submissions on the AML-CFT draft wordings must be in by April 14, 5pm.