Fund managers can’t outsource AML
Outsourcing administration doesn’t reduce your anti-money laundering requirements, the Financial Markets Authority has warned fund managers.
Tuesday, March 19th 2013, 6:00AM
by Niko Kloeten
The FMA has written an open letter to managers of collective investment schemes (CIS), which are reporting entities under the Anti-Money Laundering and Countering Financing of Terrorism Act, which kicks in from June 30.
The regulator said there were several characteristics of CIS that might make them more vulnerable to money laundering.
These characteristics could include: Considerable amounts of funds under management; high net worth investors; the ability to invest by online or postal applications, or; “complexity and a lack of transparency in the manner that funds flow between parties in a CIS,” the FMA said.
“This vulnerability is compounded by fund administration (including registry services) often being outsourced. As a result, investors may have no face-to-face contact with the fund manager or an intermediary such as a financial adviser.”
The FMA said it had been visiting reporting entities from across the investment sector and had been pleased to see progress being made towards being AML compliant.
“However, we have noted that when administration has been outsourced, there is an expectation by the fund manager that the administration ‘agent’ will be responsible to varying degrees for the implementation of obligations under the Act,” it said.
“Outsourcing of administration duties does not absolve the manager of a CIS from its obligations as a reporting entity under the Act.”
Regardless of whether they are using an “agent”, reporting entities must complete a risk assessment and AML/CFT programme, which should take account of any risks associated with the outsourcing of admin functions, the FMA said.
“Ultimately, the fund manager, as a reporting entity, will be responsible for any breaches of the Act that may occur through the outsourcing process.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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