FMA issues warnings for AML/CFT failures

Yesterday, the Financial Markets Authority (FMA) announced that it had issued a public warning (dated 20 March 2020) to Tiger Brokers (NZ) Limited (Tiger Brokers) and private warnings to six other businesses in relation to failures to satisfy their anti-money laundering and countering financing of terrorism (AML/CFT) obligations.

These failures were identified by the FMA’s ongoing monitoring, through cyclical reviews, of reporting entities that it supervises.

The FMA’s media release can be found on its website, as can the notification of a formal warning that was issued to Tiger Brokers.

Who needs to read it?  Why?

This will be of interest to all reporting entities, whether supervised by the FMA, Reserve Bank of New Zealand or Department of Internal Affairs (DIA). It provides a powerful reminder of the assertive enforcement approach that they are taking given that the regime will have been in force for seven years in June.

What does it cover?

These warnings were all formal warnings issued under the FMA’s statutory powers. Warnings were chosen from the array of actions available to the AML/CFT supervisors because they can cause change more quickly than pursuing court proceedings would, and because they were considered the most proportionate response to the conduct in question.

A failure to comply with a formal warning such as these can trigger enforcement action. Further, as was mentioned in the public warning to Tiger Brokers, the issuing of a formal warning does not affect the FMA’s ability to consider or impose other sanctions.

Tiger Brokers

A public warning was considered necessary for Tiger Brokers because of the large size of the business and the severity of the likely breaches, including their wide-ranging and non-minor and non-technical natures.

In issuing this warning, the FMA came to the conclusion that there were reasonable grounds to believe that Tiger Brokers had contravened the AML/CFT Act 2009 by failing to:

  • adequately conduct enhanced and ongoing customer due diligence where such was required;
  • adequately verify relevant customer identification documents;
  • obtain, and take reasonable steps to verify, adequate source of fund or wealth information for high-risk customers;
  • report suspicious activity to the Commissioner of Police within three working days of forming a suspicion; and
  • take reasonable steps to determine whether a customer, or any beneficial owner thereof, is a politically exposed person.

Following this warning, Tiger Brokers was required to prepare a plan describing how and when it will complete the measures prescribed within it and submit that to the FMA by the end of Friday 3 April 2020. If the plan was accepted by the FMA, Tiger Brokers would have to complete those measures by 30 September 2020 (or another date agreed with the FMA). Details of whether this plan was submitted or has been accepted, or any such other details, have not been made public.

Private warnings

The other six warnings issued by the FMA were private in nature, on the basis that the recipients were either small businesses or individuals and were cooperating with the FMA and taking steps to become compliant. Of these six recipients:

  • four failed to have their AML/CFT risk assessments and compliance programmes audited in a timely manner;
  • one failed to provide an audit of its AML/CFT risk assessment and compliance programme; and
  • one failed to undertake a risk assessment, have in place a compliance programme, or designate an employee to administer and maintain that programme.

Our view

The issuing of these warnings makes clear that, following the Financial Action Task Force Mutual Evaluation earlier this year, the AML/CFT supervisors in New Zealand are continuing to be vigilant for noncompliance and willing to take an assertive enforcement approach. Given the increasingly-mature nature of the AML/CFT regime, having been in force for nearly seven years, the three supervisors are each intending to hold reporting entities to their express expectation of awareness of and compliance with AML/CFT obligations.

The DIA has led the way with civil penalties and criminal prosecutions over the last two years. The FMA’s announcement shows that it is also active. While the supervisors are willing to provide assistance to reporting entities, to cope in the disruption of the COVID-19 state of emergency, for example through the identity verification guidance issued jointly by them (our discussion of which can be found on our website), that does not extend to letting reporting entities who are not striving to comply off the hook.

What next?

If you have any questions in relation to these warnings, or the AML/CFT regime more generally, please contact one of our experts.

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