Advisers drafted to fight war on terror

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Financial advisers will soon be on the front line in the battle against terrorism financing and money laundering, and could face legal action if they don't do enough to stop dodgy dealing by clients.

Wednesday, January 18th 2012, 6:00AM

by Niko Kloeten

The Anti-Money Laundering and Countering Financing of Terrorism Act, which was passed in 2009, finally comes into effect in June next year.

It requires "reporting entities" (including Authorised Financial Adviser businesses) to have a programme in place to reduce the risks of their businesses being used as a conduit for laundered money or funding for terrorism, and to report to the police any transactions by clients that could fit that description.

The Financial Markets Authority, which has the job of monitoring these reporting entities, has issued guidance for advisers on how to comply with the new regime.

FMA head of compliance monitoring Elaine Campbell said it "doesn't take a brain surgeon" to spot suspicious financial activity.

She told Good Returns the regime was "risk-based", meaning those with "high-risk" clients would have to keep a closer eye on their affairs than those with a "low-risk" client base.

So what should advisers look for to determine how risky their clients are?

"When you're considering high risk versus low risk you've got to ask two questions: one, 'what kind of products are they investing in?'; and two, 'does it make sense against what they've told me in their investment profile?'

"You're looking for inconsistencies in how they are telling you to invest versus what their profile for investment looks like."

Campbell said other risk factors included which countries clients were investing in and whether they paid in cash.

"Someone who turns up at your door with $100,000 cash in a suitcase should ring alarm bells.  It doesn't seem to take a brain surgeon to figure out, does it?"

She said advisers will have nothing to fear from the new law if they tick all the right boxes, even if a client later ends up in the dock for one of the offences being targeted by the Act.

"It's really around compliance with your obligations. If you comply but someone sneaks through the net you're not going to be held responsible for their wrongdoing.

"If your risk-based profile is inappropriate for the types of clients you have it's different to if it is appropriate and you do everything right but one of your clients turns out to be a relative of Osama."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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