The Financial Markets Authority (FMA) has signaled a further crackdown on anti-money laundering (AML) compliance with advisory firms in particular now under closer scrutiny.
In a release last week, the FMA says some financial advisers have become AML reporting entities post the introduction of the new regulatory regime in the sector this March.
Prior to the implementation of the Financial Services Legislation Amendment Act in March, financial advisers represented about two-thirds of the FMA reporting entity population.
“The FMA will closely monitor the [advice] sector to determine if there is any material change in the level of [money laundering and terrorism financing] risk,” the statement says.
But the regulator will take a harder line on AML compliance across the industry with the rules now in place for eight years, according to James Greig, FMA director supervision.
Greig said businesses have had “plenty of time” to adapt to the AML (and countering financing of terrorism – or CFT) regime.
“Accordingly, we have now less tolerance for companies not meeting their obligations, which is reflected in an increased number of enforcement actions,” he said. “Disappointingly, we found numerous instances of businesses not meeting basic requirements, particularly around having a robust AML/CFT programme.”
In a new report covering the three years to June 30, the FMA notes it had conducted 60 AML monitoring reviews while unearthing 363 “issues requiring remedial action”.
During the period the regulator handed out 27 warnings including three public notices sent to Circle Markets, Tiger Brokers and Sharesies – all broker-type entities.
As well, the FMA claimed an AML-based first court win against derivatives broker CLSA Premium NZ (formerly known as KVB Kunlun NZ) that saw the firm hit with a $700,000 penalty last month.
However, financial advisers represented 17 of the 27 warnings issued over the three years to June 30, 2021, with brokers/custodian copping eight of the FMA infringement notices.
And it seems the regulator’s AML push has increased compliance activity in the sectors it oversees. The FMA-monitored AML-reporting entities only lodged 38 of the total 10,585 ‘suspicious activity reports’ filed in NZ during the 2013/14 financial year – the first period of operation for the regime.
While still a small proportion of the 24,000 plus suspicious activity reports accrued during the 2020/21 period, FMA-policed entities contributed 493 of those – up from 257 in the previous year.
The FMA is one of three AML regulators with the Reserve Bank of NZ and the Department of Internal Affairs responsible for policing other sectors.
In other recent regulatory updates, the regulator has given KiwiSaver providers the option of using two methods to calculate “approximate” dollar annual fees used in member reporting – although, not really.
The FMA note says KiwiSaver providers can use either the total annual fund charges (TAFC) methodology or the member balance as the dates fund units are valued (based on a cents per unit – or CPU approach.
“However, our preference is for providers to use the CPU methodology,” the FMA says. “We encourage providers using the TAFC methodology to switch to the CPU methodology at an opportune time.
“We intend to consult with all KiwiSaver providers to check whether there are any technical issues with the wording of the current methodology notice before a new notice is put in place.”
Finally, the FMA has further extend reporting relief to kauri bond issuers under an exemption for wholesale investors with $750,000 or more to place.
“However, we have decided not to continue relief for offerors of other unsubordinated debt securities,” the regulator says. “Currently these offerors have relief from the requirements to have an investor warning on every key offer document (instead it can just be on the principal terms sheet) and obtain an investor acknowledgement. There is no evidence of material reliance on this exemption in the market.”
The current exemption notice expires on February 4 next year.