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Associations take AML concerns to FMA

Associations representing financial advisers have held meetings with the Financial Markets Authority to discuss their concerns about the new AML/CFT reporting requirements.

Wednesday, July 2nd 2014, 6:00AM 10 Comments

by Susan Edmunds

From this year, reporting entities are required to complete an annual return each year for the period from July 1 to June 30. The report has to be completed by August 30.

It asks for details of the business, including the number of transactions done each year, the gross value of transactions, details of clients and how those clients were signed up.

There are concerns that if every transaction has to be detailed, and an adviser has a lot of clients and contributions or withdrawals being made, each report could take a long time.

It has been suggested that a better option would be to monitor individual higher-risk clients rather than each transaction.

Murray Weatherston, of SiFA, confirmed there had been meetings with the FMA but said he could not say what had been discussed.

He said the AML reporting requirements could be onerous.  “Our view is that the AML risk presented by financial advisers doesn’t seem to be anywhere near as large as the officials’ perception... many of us were surprised advisers got caught in the regime at all when lawyers don’t.”

Financial advisers had earlier been given a structural risk assessment by the regulator of medium/high.

A Securities Commission document said: “They are the contact point between investment product providers and customers. They have knowledge of, and opportunity to question, a customer, when product providers, who typically have limited or no customer contact, do not.”

The FMA is believed to have been open to discussion on the requirements.

Departing IFA president Nigel Tate had previously suggested the AML reporting be tied in with other financial adviser regulatory requirements, such as licensing. but Weatherston said that was not a solution because AML reporting is done by each reporting entity, not each individual adviser.

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Comments from our readers

On 2 July 2014 at 8:51 am Fred said:
More 'sledge-hammer-to-crack-a-nut' from the FMA. But there are fewer & fewer nuts left as Advisors.
Then the FMA will presumably focus on couriers & cab-drivers because they too have "opportunity to question, a customer, when product providers, who typically have limited or no customer contact, do not"
Why is the FMA so petrified of Banks & Lawyers, which is where the real money-laundering goes on?
On 2 July 2014 at 11:34 am Gavin Austin ABCompliance said:
I can understand the concerns but from my understanding they seem a little overstated. The comment "There are concerns that if every transaction has to be detailed, and an adviser has a lot of clients and contributions or withdrawals being made, each report could take a long time" does not ring true. Having tested the report process it is my understanding that it's the number of transactions and the combined value of them and not details of each one.

This would be a huge task if it were true. For advisers who use a wrap platform I would expect that the wrap platform would be able to produce the data for you ( although I personally don't use a wrap platform at present) but from past wrap platform use I would be able to get the platform to produce a report of ins and outs etc. If anyone needs some help with this let me know.
On 2 July 2014 at 2:09 pm Pragmatic said:
Aside from Singapore, NZ is regarded as one of the easier Asia/Pac targets to launder foreign money. There are plenty of NZ based entities who make a good living from establishing NZ domiciled entities to "minimise" the transparency on behalf of their foreign clients.

To date none of my encounters with these entities have been AFAs or financial advisors.
On 2 July 2014 at 7:27 pm Curious said:
Gavin that may be fine if an adviser's transactions are predominantly lump sum via a wrap. What is the invested amount where a client joins KiwiSaver?

Where a substantial amount of KiwiSaver business is involved it would be a nightmare trying to work out what has been invested over the reporting period.

KiwiSaver being subject to AML is ridiculous in my opinion.
On 3 July 2014 at 10:17 am Gavin Austin ABCompliance said:
Good point curious - my suggestion is that your Kiwisaver providers should be able to provide you with the same details. The major difference being there will predominately deposits and very few withdrawals. As with any compliance issue there is often misinformation and uncertainty of how to get help, coupled with the lack of desire to pay for advice. The following email content arrived in my inbox after one email sent by myself yesterday "Yes, Aegis is in a position to provide AFAs all the relevant reporting requirements they need. We already have established reporting for the majority of our existing clients". I am reasonably confident that other wraps will be the same as will Kiwisaver Providers. If yours doesn't then research who does and as long as all other things are equal I'd suggest you consider switching providers. Happy to assist anyone with AML reporting for a modest fee. (Hope you don't mind the plug for business Phil)
On 4 July 2014 at 8:54 am The Colonel said:
Gavin - you have to be kidding about switching providers if info is not given
There has already been an article on the ongoing churn in the risk space - let's not go there
On 4 July 2014 at 10:08 am Brendon Stewart said:
ABC Compliance - What risk factor does KiwiSaver have? Even a fool considering AML/CT wouldn't spend more than a thought on using it. All reporting entities should have a very low risk factor of ML/CT for KiwiSaver.
On 4 July 2014 at 11:21 am btw said:
Has the FMA said that a client advisor, that doesn't handle client funds, nonetheless has to report all transactions carried out between the 3rd party provider and the client? Apart from not necessarily knowing all transactions between the provider and the client (so our answer would always be incomplete), isn’t it also duplicating the report filed by the provider (so will incorrectly inflate numbers). I’m surprised FMA are requiring that information if in fact they are. We answered zero to Part 3 questions on transactions as we neither offer product nor settle transactions (we're advice only). I guess we'll wait and see how we go!
On 4 July 2014 at 11:24 am Gavin Austin ABCompliance said:
Colonel - no I'm not kidding. And it's not churning either. When rating Kiwisaver I defer to the Sorted website. It rates on three criteria. Fees, Service and Returns.

If we look at service then if your Kiwisaver providers IT systems can't provide the adviser the data for AML it begs the question as to the quality of it's IT and therefore the ability to provide Kiwisaver members with a reasonable quality of service.

So I'd stick to my point that if all other things ie fees and returns are equal (or better) then switching to a provider that can provide an adviser this service is a good thing. It's not churn but putting your clients interest first as I believe your interests( a n efficient,compliant and profitable business) are aligned to your clients interests. So I'd hope there are Kiwisaver Providers out there that would agree with this and are providing the appropriate level of support to its advise distribution network. It would be great to hear some comments form the Warp and Kiwisaver providers on this issue.
On 4 July 2014 at 11:47 am Gavin Austin ABCompliance said:
Brendon - Unfortunately Kiwisaver is caught under the AML/CFT Act and I agree with you it's low risk, probably very low.

BTW - in response to a query about this the following response from FMA was "When counting the number of transactions, the relevant information we need relates to the number of transactions that financial advisers have arranged for their clients. Where fees and commission relate to existing transactions (that have already been counted for the purposes of the annual AML/CFT report) there is no need to count these as additional transactions. The fees/commissions would obviously be added to the ‘value of transactions’ recorded in the annual AML/CFT report.". They have focused on "the number of transactions that financial advisers have arranged for their clients" which by extension the transactions an AFa does for client with wraps using a DIMS service where the adviser signs of the TAF.

I agree with your thoughts but we'll wait and see if FMA wants to clarify this further.

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