FMA Steps Up Enforcement Of Anti-money Laundering Breaches

The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko has escalated its enforcement approach to non-compliance with New Zealand’s anti-money laundering and countering financing of terrorism (AML/CFT) rules, according to a new report.

The FMA’s AML/CFT Monitoring Insights Report covers the regulator’s monitoring of the AML/CFT Act over the past three years (1 July 2018 – 30 June 2021). The report notes the FMA issued three public warnings, brought its first High Court proceedings under the Act and 27 formal, private warnings were issued. The FMA’s previous monitoring report (1 July 2016 – 30 June 2018) said the regulator issued one public warning and 17 formal, private warnings.

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

In the three-year period the FMA conducted 60 monitoring reviews on firms, identifying 363 issues requiring remedial action. The most common areas of concern were inadequate and outdated AML/CFT programmes and entity self-risk assessments, as well as insufficient customer due diligence by entities.

James Greig, FMA Director of Supervision, said: “New Zealand’s AML/CFT regime has been in place for eight years and businesses have had plenty of time to comply with the regulations. Accordingly, we have now less tolerance for companies not meeting their obligations, which is reflected in an increased number of enforcement actions. Disappointingly, we found numerous instances of businesses not meeting basic requirements, particularly around having a robust AML/CFT programme.

“The FMA has also spent considerable time educating the industry on what’s 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 large increases in volumes of suspicious activity reports being filed by firms.”

Suspicious activity reports submitted by FMA-reporting entities to the Police Financial Intelligence Unit (FIU) have risen 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 Act requires reporting entities to have self-risk assessments and AML/CFT compliance programmes audited every two years (now every three years, with effect from 9 July 2021) or at any other time at the request of their AML/CFT supervisor.

“We have noted several instances where firms failed to have their AML/CFT audits completed, or they were late. There were also failures to remediate audit findings, which could indicate a lack of priority or willingness to comply. In some instances, senior management failed to monitor the progress of remediation work,” Mr Greig said.

The FMA’s monitoring activities through 2020/21 were impacted by COVID-19, with on-site monitoring paused through Alert Levels 3 and 4, however the FMA remained vigilant to any issues raised by firms.

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

Future focus

Looking forward, the FMA intends to continue monitoring firms’ processes, with more in-depth assessments of how they add new customers, as well as their monitoring of accounts and transactions, and reporting of suspicious activity to the FIU.

The regulator will assess how much entities relied on guidance issued in response to COVID-19 limiting entities’ abilities to onboard new customers and perform account monitoring. The FMA will test if entities applied the guidance correctly.

The FMA will also be monitoring the financial advice sector following the implementation of the financial advice regime in March 2021, which means some financial advisers will become FMA-reporting entities. The FMA will closely monitor the sector to determine if there is any material change in the level of ML/TF risk.

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