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Financial Services Quarterly
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Anti-money laundering and anti-terrorist financing regulation to be increased
In August, the Minister of Justice reiterated the need for New Zealand to tighten its safeguards against money laundering and terrorist financing.
New Zealand financial institutions should note that changes are likely to be required to:
- customer identification standards;
- record-keeping requirements;
- suspicious transaction reporting;
- ongoing monitoring of accounts and transactions; and
- company policies and compliance/training programmes.
A requirement is also expected to be introduced for directors, senior managers and significant shareholders of financial institutions to meet a "fit and proper persons" test.
The Minister of Justice announced in February that re-regulation would be likely in this area.
His latest announcement follows the publication of a report by the Financial Action Task Force (FATF), an international inter-governmental body, on New Zealand's observance with FATF's recommendations to counter money laundering and terrorist financing. The report essentially gave New Zealand a "could do better" grade.
In summary, FATF's main conclusions, and the responses announced by the Government, are:
- Since its last evaluation in 1998, New Zealand has made few changes to its anti-money laundering regime, but has introduced measures to combat terrorist financing (the Terrorism Suppression Act 2002).
- The criminal justice legislative measures for combating money laundering and terrorist financing are generally sound. Some minor legislative changes, combined with additional resources and organisational changes, could further enhance the system. The Government has mentioned an amendment to the Financial Transactions Reporting Act 1996 to require financial institutions to obtain, verify and retain information about the originators of wire transfers (in line with FATF's recommendations).
- The requirements for record keeping and reporting of suspicious transactions are sound, but customer due diligence measures need to be amended to introduce requirements for properly identifying third parties for whom a customer is acting, and to remove a number of other limitations or exemptions. The Government has proposed an enforceable code of practice.
- Guidelines for reporting entities need to be updated.
- Appropriate mandatory requirements need to be introduced concerning financial institutions and their internal controls to prevent their control or acquisition by criminals. The Government has proposed a "fit and proper persons" requirement for directors, senior managers and significant shareholders of all financial institutions, in line with the banking sector. A registration regime for persons providing money transfer or currency exchange services has also been put forward.
- Most importantly, an effective system needs to be introduced to supervise and/or monitor the compliance by relevant financial and other institutions.
The Government's media statement regarding the increased regulation noted that the move had been welcomed by the United States Embassy. The Minister of Justice also acknowledged that the changes will result in unwelcome increased administrative costs for the financial sector.
The Government has circulated a discussion document for the purposes of consulting with the finance sector about the proposed changes.
For more information, see www.justice.govt.nz.
Enquiries and information
For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
