Shot across the bow from FMA on AML CFT compliance

03 April 2019

The Financial Markets Authority (FMA) is calling time on the quality of Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) implementation in New Zealand, in its monitoring report for 2016 to 2018, released this week.

The FMA says Reporting Entities (REs) have had more than five years to familiarise themselves with their obligations under the AML/CFT Act, “and we expect to see more mature policies, procedures and controls in place”.

It notes that the RE population under its supervision is largely unchanged since December 2016, when it last reported. Around two thirds of New Zealand’s approximately 800 REs are financial advisers. The remainder are derivatives issuers, brokers and custodians, fund managers, providers of discretionary management services, equity crowdfunding and peer-to-peer lending platforms, licensed supervisors and issuers of securities.

The FMA has indicated that it will be ramping up its enforcement effort consistent with its enforcement policy, shifting from a reactive to a proactive stance.

It will be conducting more desk-based and on-site monitoring visits and will increase its focus on reviewing independent audit reports. It warns REs to expect more in-depth reviews of areas such as client on-boarding and account monitoring processes, and more engagement by FMA with frontline staff responsible for these tasks to assess their understanding of their AML/CFT responsibilities.

Chapman Tripp comments

The FMA’s expectation is that REs will “consider the findings and observations in this report and, where required, update their AML/CFT policies, procedures and controls to ensure compliance with their obligations”.

We encourage you to do that promptly and proactively, rather than waiting until the next audit. Helpfully, FMA has provided examples of good practice and bad practice – which will be useful indicators to benchmark yourself against.

At a minimum, the FMA expects to see AML/CFT programmes and risk assessments updated annually, or more regularly where circumstances change (e.g. if there is regulatory change or an RE introduces a new service or product).
It is important to notify the FMA if there is a change in your business such that an RE is to be added or removed (as the FMA maintains a list of REs), or if there is a change in your AML/CFT compliance officer.

There is a significant level of detail in the report which you will need to digest in order to assess whether your existing processes measure up. If you need assistance in relation to your risk assessment and AML/CFT plan, or have any other queries, please contact any of our experts.

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