FMA steps up enforcement of anti-money laundering offenses

The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko has stepped up its coercive approach to non-compliance with New Zealand anti-money laundering and terrorist financing (AML / CFT) rules, according to a new report.

The FMA AML / CFT Surveillance Analysis Report covers the regulator’s oversight of the AML / CFT law over the past three years (July 1, 2018 – June 30, 2021). The report notes that the FMA issued three public warnings, initiated its first High Court proceeding under the law, and 27 formal private warnings were issued. The previous FMA surveillance report (July 1, 2016 to June 30, 2018) indicated that the regulator had issued one public warning and 17 formal private warnings.

The FMA is one of three supervisory authorities under the AML / CFT Act, along with the Reserve Bank of New Zealand (RBNZ) and the Department of Internal Affairs (DIA). The FMA oversees around 750 reporting entities under the law, two-thirds of which define themselves as providers of financial advice.

During the three-year period, the FMA conducted 60 corporate surveillance reviews, identifying 363 issues requiring corrective action. The most common areas of concern were inadequate and outdated AML / CFT programs and entity risk self-assessments, as well as entities’ lack of customer due diligence.

James Greig, FMA Supervisory Director, said: “New Zealand’s AML / CFT regime has been in place for eight years and companies have had ample time to comply with the regulations. As a result, we now have less tolerance for companies that fail to meet their obligations, which translates into an increased number of enforcement actions. Disappointingly, we have found many cases of companies failing to meet basic requirements, especially when it comes to setting up a strong AML / CFT program.

“The FMA has also spent considerable time educating the industry on what is expected, including targeted training for compliance officers on how to monitor accounts and transactions, and file suspicious activity reports. . This appears to have had an impact, with sharp increases in the volumes of suspicious activity reports filed by companies. “

Reports of suspicious activity submitted by reporting entities to the FMA to the Police Financial Intelligence Unit (FIU) have increased significantly over the past three years – from 170 in 2018/19 to 257 in 2019/20 and 493 in 2020 / 21. This is only a proportion of the total FIU reports for all reporting entities.

The law requires reporting entities to have risk self-assessments and AML / CFT compliance programs audited every two years (now every three years, starting July 9, 2021) or at any other time as requested by their AML / CFT supervisory authority.

“We have noted several cases where firms have not completed their AML / CFT audits or have fallen behind schedule. There have also been failures to correct audit findings, which could indicate a lack of priority or willingness to comply. In some cases, senior management did not monitor the progress of the remediation work, ”said Greig.

FMA surveillance activities through 2020/21 have been affected by COVID-19, with on-site surveillance halted until alert levels 3 and 4, but the FMA has remained vigilant in the face of any issues raised. by companies.

In 2019/20, a Financial Action Task Force (FATF) assessment of the effectiveness of New Zealand’s AML / CFT measures found the country to be doing well, but there is room for improvement .

Future goal

Going forward, the FMA intends to continue to monitor business processes, with more in-depth assessments of how they add new clients, as well as their account and transaction monitoring, and reporting. suspicious activity at the FIU.

The regulator will assess the extent to which entities have relied on guidelines issued in response to COVID-19 limiting entities’ abilities to onboard new clients and perform account monitoring. The FMA will test whether the entities have applied the guidelines correctly.

The FMA will also monitor the financial advice industry after the implementation of the financial advice regime in March 2021, which means that some financial advisers will become FMA reporting entities. The FMA will closely monitor the sector to determine if there is a material change in the level of ML / FT risk.

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