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The Government is proposing a tranche of further amendments to the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act). The changes, detailed in a Cabinet Paper released last week, are part of the statutory review of the Act initiated by the Ministry of Justice in 2022.
Key changes
The proposals are largely technical in nature and include:
- Reducing the enhanced customer due diligence (CDD) requirements on certain low-risk trusts, by removing the requirement to verify information on the source of funds or the source of wealth.
- Expressly prohibiting international wire transfers not accompanied by required information, to ensure the integrity of New Zealand’s payment system and compliance with Financial Action Task Force (FATF) standards.
- Removing the term “only to the extent that” from section 6(4) to make clear that reporting entities that are captured both as a financial institution and as a designated non-financial business or profession (DNFBP) are required to comply with obligations in respect of each activity.
- Requiring reporting entities to take into account Government risk assessments (such as the National Risk Assessment or sectoral risk assessments) when when conducting their own risk assessment.
Other changes
- Prescribing timeframes for record-keeping, in line with Financial Action Task Force standards to produce records “swiftly”.
- Allowing compliance officers to be senior managers or report to senior managers.
- Clearer application of prohibitions on reporting entities that do not (including if they are unable to or merely choose not to) conduct CDD.
- Reducing the efficacy requirement when assessing a financial institution’s AML/CFT controls from “effective” to “adequate”.
- Amending the definition of “trust and company service provider” to prevent dual capture as both financial institutions and DNFBP and of “beneficial owner” to align with the clarification that reporting entities will generally not be required to conduct CDD on the customers of customers.
- New definitions for “life insurer” (to align with the definition in the Insurance (Prudential Supervision) Act 2010), “import”, “export” and “money or value transfer service”.
Comment and next steps
We welcome these technical changes and the increased clarity they will provide in certain areas. We also believe the move to reduce CDD requirements on low-risk trusts is a sensible one which recognises that many trusts in New Zealand are low risk for AML/CFT purposes.
We urge caution in the drafting of the amendment to section 6(4). While the stated purpose of the amendment in the Cabinet Paper is clear, the words “only to the extent that” represent a key boundary for reporting entities to define which activities are subject to the AML/CFT Act, and which are not. The detailed drafting will be particularly important in this context.
The change requiring reporting entities to take into account (instead of merely “have regard to”) government risk assessments when undertaking their own AML/CFT risk assessments will need to be carefully considered, so that the risk-based nature of the AML/CFT Act is not undermined by an insistence on adherence to “compulsory” elements of non-legislative material which may be unsuitable in the context of the AML/CFT risk profile of the business concerned. Our experience is that reporting entities very carefully consider government risk assessments for this purpose, and it will be interesting to see what additional regulation is considered necessary here. We would not support a general requirement that all other guidance must be taken into account, given that could risk guidance becoming seen as a mechanism for imposing further obligations when that should be left to legislation and regulation.
We will not know the detail of what is proposed until the AML/CFT Amendment Bill is available. Plans are that it will be introduced before Christmas. If you would like more information about how the proposed changes might affect your business, please get in touch with one of our experts.
