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Brief Counsel

Will you qualify for an exemption under the new AML/CFT regime?

01 August 2012

Download:2012 PUB BC Will you qualify for an exemption under the new AMLCFT regime - 1 August.pdf

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Compliance with the new Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act) will be made easier through a series of exemptions proposed in a recent consultation document.

We suggest you explore whether your business would benefit from an exemption.  Submissions close on 17 August.

Proposals

  • Auctioneers and internet based auction providers to be exempt from the broad definition of financial institution in the Act.  This reflects the decision to deal with the retail sector in the second phase of reform.
  • The simplified due diligence procedure for reporting entities to be extended to two further customer groups:
    • foreign companies that are listed on a recognised overseas public stock exchange with adequate disclosure requirements within a jurisdiction with a sufficient AML/CFT regime, and
    • entities that are supervised or regulated under the Act and that are licensed or regulated in accordance with the Insurance (Prudential Supervision) Act 2010, the Reserve Bank of New Zealand Act 1989 or the Non-bank Deposit Takers Bill.
  • Banks to be exempted from the requirement to collect and hold information about all of a customer’s clients where the customer has a custodial holding-type bank account through which multiple client funds flow frequently.  The proposal is to simply expand to custodial accounts, the exemption applying to trust accounts.
  • Introduction of a suspicion “trigger” for customer due diligence. Customer due diligence should be conducted regardless of exemptions or thresholds if there is a suspicion of money-laundering or terrorist financing.  An exception to this is where the reporting entity believes that to do so would disclose or would be reasonably likely to disclose the existence of a suspicious transaction report.  The purpose of the exception is to remove any potential conflict between the due diligence requirements under the Act and the prohibition against “tipping off” suspect customers.  Similar provisions are available in Australia, the UK and Canada. 
  • Specific reporting requirements applying to wire transfers of more than $1000.  

Forms

The consultation document provides proposed documentation for:

  • an annual reporting form, and
  • a suspicious transaction report.
The annual reporting form is prescriptive and extensive.  Reporting entities will need to consider whether their reporting systems are appropriately configured to allow it to report all of the information required by the form.

Stored value instruments

The regulations propose amending the definition of “stored value instrument” to make it clear that AML/CFT obligations will apply where a reporting entity clearly has an ongoing business relationship with a customer.

This proposal is based on the distinction between instruments where value is stored on the device itself (including any account associated with the value stored on the device) and instruments that provide access to an account or arrangement where funds are held and the account or arrangement is managed by a financial institution (such as credit and debit cards) – the latter being indicative of a “business relationship”.

Existing exemptions for “stored value instruments” would be narrowed to ensure that higher risk instruments are always subject to the requirements of the AML/CFT Act.

This narrowing would be achieved by excluding instruments which have international remittance capability and introducing maximums on withdrawals from, and the reloading of, the instrument.  Changes of this kind have the potential to limit the flexibility of stored value instruments, particularly the exclusion of instruments with international remittance capability. 

Feedback is also sought on whether a definition of “debit card” would be useful.

Related to this, it is proposed that the exemptions in the AML/CFT Act relating to low value “stored value instruments” (e.g. Snapper cards) be extended to cover the current scheme in the Financial Transactions Reporting Act 1996, meaning that these exemptions would come into force earlier.

Technical amendments

A range of technical amendments to the AML/CFT (Definitions) Regulations and the AML/CFT (Exemptions) Regulations are proposed.  These include changes to the existing exemptions regarding:

  • record keeping in casinos, and
  • non-finance businesses in respect of certain types of consumer credit.

New guidelines

Three new guidelines on the Act have also been released: the Countries Assessment Guideline, the Designated Business Group – Scope Guideline, and the Designated Business Group – Formation Guideline.

The Countries Assessment Guideline outlines the process for assessing aspects of another country’s regulatory environment for the purposes of the AML/CFT Act.  Such an assessment may be necessary where you deal with a customer or institution resident or supervised from another country.  The guideline covers:

  • when an assessment is likely to be required
  • the different types of assessment and the sorts of factors that should be considered for each type, and
  • resources that may be useful in such an assessment.

The Designated Business Group – Scope Guideline explains which obligations may be shared by members of a Designated Business Group (DBG).  An entity that joins a DBG may rely on another member of the DBG to carry out some of its obligations under the AML/CFT Act.  These include: 

  • customer due diligence
  • record keeping and account monitoring
  • annual reporting
  • risk assessments, and
  • suspicious transaction reporting.

The Designated Business Group – Formation Guideline provides guidance around the eligibility requirements, the form of an election to become a member of a DBG, the notification required, and the process around withdrawal from or the dissolution of a DBG.

Further guidelines are to be issued on the AML/CFT Obligations of Issuers of Securities, Audit and Beneficial Ownership.  These guidelines will no doubt be welcomed by industry.

Next steps

Submissions are sought on any minor or technical amendments that may be required to reduce ambiguity or to ensure that the regulations can be properly implemented.

If you would like assistance with making a submission or advice on the new guidelines or on how the AML/CFT regime will affect you and your business, please contact one of the lawyers featured.

Our thanks to Thomas O'Flaherty for writing this Brief Counsel.

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