Introduction
This week, the Ministry of Justice tabled its long-awaited report on the review of the AML/CFT Act, and the Justice Minister announced immediate action to implement some of the report's recommendations.
Overall, the report reflects a recommitment to New Zealand's AML/CFT regime being risk-based. Inevitably, this will involve expansion of the Act and the introduction of further obligations on businesses in some areas, but the report also appropriately recognises that there are areas where reduction of the scope of the regime or the obligations imposed on businesses is appropriate.
In this update, we have focussed on the key changes that the Justice Minister has announced will be prioritised.
We will address these topics, and other recommendations in the report, in further detail in our CPD session on 5 December 2022. Please contact us if you would like to attend.
The Minister's immediate priorities
The Minister's press release states that immediate action will be taken to improve the regime's effectiveness by:
- relaxing the requirement on businesses to verify the address of most customers;
- extending the timeframe for businesses to submit Prescribed Transactions Reports;
- exempting registered charities from AML/CFT obligations when they are providing small loans.
Taking each of these in turn:
- Reporting entities are currently required to verify the address of each customer, each beneficial owner of a customer, and each person acting on behalf of a customer. The report notes that most countries do not have this requirement and that address verification presents a range of challenges, impacts negatively on financial inclusion, and creates disproportionate compliance costs. The report recommends that the obligation to verify address is removed, except where a reporting entity is conducting enhanced customer due diligence (CDD) (ie in high risk circumstances).
- The current timeframe for filing prescribed transactions reports (PTRs) is 10 working days. The report notes that, particularly where reporting entities rely on automatic reporting solutions to submit PTRs, technical issues can prevent this timeframe being met. The report recommends that the timeframe be extended to 20 working days. The report also recommends that the feasibility of a targeted exemption from PTR reporting obligations be explored, which would apply when a business identifies a technological issue that undermines the accuracy of reports being published. It is not yet clear if this second recommendation will be adopted.
- Registered charities providing low-value loans may be reporting entities under the Act; however, the report notes that seven Ministerial exemptions have been granted for this activity (and an eighth is currently being considered). The report recommends that a Ministerial class exemption is granted for all low-value loan providers that are registered charities, where the maximum amount loaned to a customer does not exceed $6,000.
Beyond the immediate priorities
The Minister's press release goes on to state:
Further changes will address areas of known risk or vulnerabilities, improving efficiencies and reducing compliance costs, and improving compliance with international money laundering standards.
The report is wide-ranging: its scope is the entirety of the Act and the institutional arrangements that support it. It runs to 256 pages, and it makes a total of 215 recommendations. Beyond the three immediate priorities identified above, we do not yet know which of the other 215 recommendations will be progressed, nor when.
But we do expect significant reform of New Zealand's AML/CFT regime over the next few years and that all reporting entities – as well as a number of businesses that are not currently reporting entities – will be affected in some way by the reforms.
If you would like to discuss any aspect of the immediate priorities or the future potential reform in further detail, please get in touch with one of our experts.