Problem found with AML

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Advisers are worried that fund managers may pinch some of their clients if they have to pass over all their details under new anti-money laundering legislation.

Friday, July 26th 2013, 6:53AM 3 Comments

by Susan Edmunds

The FMA has acknowleged there is a problem with the law that took four years to implement and started this month, and it has released a consultation paper, called: “Practical implications of reporting entities transacting with other reporting entities.”

It tackles what the FMA has itself identified as a tricky issue – situations where one reporting entity, such as a fund manager, caters for a client who is primarily a client of another reporting entity – such as an adviser.

All reporting entities need to be able to identify the people on whose behalf a transaction is conducted, so that the individuals can be identified if necessary.

It has supplied a factsheet on managing intermediaries, which says a pragmatic approach is encouraged when investments are being made via an intermediary that is a reporting entity, such as in cases where wrap platforms are being used.  “This may involve one reporting entity relying on another reporting entity … but it does not mean that a reporting entity dealing with a managing intermediary can turn a blind eye to the source of funds.”

Anthony Edmonds, of Implement Investment Solutions said it was an unnecessary blurring of the lines regarding who owned the clients. “The responsibility for complying with AML legislation should sit with the group that owns the relationship with the client. If it doesn’t, it potentially blurs and confuses whose clients they are and who in the end is the investor’s provider.”

Murray Weatherston, of Financial Focus, agreed it would create confusion. “Advisers who use a platform or nominee companies do that to protect their relationship with clients. There’s a fear that not every fund manager would respect that. Once the fund manager knew the name and address of all the clients, they might try to sell them something else and take them away from the person who introduced them.”

Pathfinder’s John Berry said the ideal situation would have been for the FMA to recognise financial advisers as the “owners” of their clients and to have them as the one reporting entity for that client.

Pathfinder has signed advisers up to agency agreements. Agent advisers will then be monitored periodically to ensure that their AML processes meet the standards.

Berry said: “Under this agreement, the fund manager appoints the financial adviser as an agent to conduct customer due diligence. The financial adviser will then not be required to send verified ID documents for each client, unless specifically requested… we don’t see value in replicating what the adviser has done.”

The consultation paper asks whether there are any practical alternatives.  It says if any submissions are made that propose limits on the obligation to identify the “persons on whose behalf a transaction is conducted”, these will be passed on to the Ministry of Justice.

Submissions must be received by August 1.

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