About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds Other Sites:   tmmonline.nz  |   landlords.co.nz
Last Article Uploaded: Tuesday, February 25th, 8:45PM
Latest Headlines

AML definition criticised

The Financial Markets Authority has overstepped the mark in its latest release of information about AML/CFT reporting, industry body SiFA says.

Thursday, July 17th 2014, 6:00AM 18 Comments

by Susan Edmunds

The regulator has released a series of FAQ about the AML/CFT reporting, including clarification of question 6.1 in the report, which has been contentious.

That section is potentially the most onerous of the AML return, and asks reporting entities to estimate the value and number of all transactions settled by their reporting entity during the year.

SiFA had argued that advisers whose clients sent money direct to a fund manager, rather than using a trust account for client money, were arranging transactions but not settling them – and should answer “nil” and “nil” for the value and number of transactions.

The FMA said yesterday that it did not agree with that view, although it acknowledged that the wording was open to different interpretations. It wants advisers to record those transactions, even if the money did not go through their accounts.

It said that advisers who had managed their records in good faith over the year on the basis of the interpretation that their transactions would not be counted as “settled” by them would not have action taken against them for a breach of the obligation to correctly complete the annual report this year. But the advisers would not be able to argue in the following year that they, in good faith, did not realise.

SiFA spokesman Murray Weatherston said the regulator must regulate within the confines of the legislation that sets out their boundaries. “We think it has overstepped those boundaries in its AML FAQ yesterday. We think it is attempting to extend legislation by FAQ. Essentially it is rewriting a few key words in the legislation.”

Weatherston said a legal opinion from DLA Philips Fox supported the view that when an AFA did not handle client cash or investments through their business or trust account, the AFA was not settling transactions. “Therefore they should report ‘nil’ and ‘nil’. We supplied that opinion to the FMA but it has dismissed it.”

He estimated 95% of advisers would not run client money through their own accounts. Many of those using platforms would be able to get the information on the value and number of transactions from the platform provider but others would find it difficult.

He said: “Since the same legislation applies to all reporting entities supervised by all of the supervisors (FMA RBNZ and DIA) then presumably any statutory interpretation promulgated by any of the supervisors must apply across the board. That is it applies more widely than to just those reporting entities captured under regulation 16…The FAQ is addressed to AFAs in particular, but its content must have wider impact.”

« AMP adds another financial planning firm to its networkIFA working on pro-bono offering »

Special Offers

Comments from our readers

On 17 July 2014 at 6:36 am Murray Weatherston said:
I wonder whether you will allow us in this comments section to include the balance of the Board's statement.

"The FAQ is addressed to AFAs in particular, but its content must have wider impact.

A couple of examples spring to mind. In a share broking environment, it seems clear that anything resulting in the issue of a contract note would be settled by the broker. But we doubt that brokers think that when the broker arranges for his or her client to purchase an IPO or a new debt issue, and the client writes a cheque payable to the issuer, that these transactions will also be deemed to have been settled by that broker in terms of FMA’s new ruling for AML Annual reporting.

Where a bank takes a $25 million slice of a $250 million syndicated loan, we would have thought the bank was settling $25 million. But it would have been responsible for arranging a $250 million loan, so in terms of FMA's FAQ, it would have to report $250 million in its AML Annual report.

We urge all AML reporting entities and their advisers to take a good look at the FMA ruling and see if they come to the same view as us.

SiFA’s belief is that Authorized Financial Advisers should be willing compliers, but only so long as the FMA stays within its legislative authority. Our view is that FMA has overstepped today”.

On 17 July 2014 at 9:32 am Brent Sheather said:
Another angle on this is to consider how much time and resource is wasted on these issues when we could all be doing other things.
On 17 July 2014 at 9:44 am Pragmatic said:
The regulator will be much more efficient if they a). Avoid a draconian approach to their tasks, b). Involve & listen to the industry to whom they preside over, c). Acknowledge their role as enforcers of the laws rather than architects of the laws. The alternative becomes an exceedingly inefficient & confrontational approach to supervision
On 17 July 2014 at 11:01 am Stanley Running said:
AML reporting for small AFA businesses is simply the biggest crock of nonsense in the history of business.

Absolute joke that undermines the FMAs credibility.
On 17 July 2014 at 11:09 am Carey Church said:
Firstly, thank you to Murray and SIFA for leading the charge on this issue.

I have a number of concerns over the relevance and value of reporting all these numbers, but will do so as required, and understand the logic for our Wrap Platform clients.

I don't understand the logic where there is another reporting entity also reporting the transactions.

In particular, I am very confused (hopefully someone can enlighten me) as to how the information relating to our KiwiSaver clients can be of any value. I have noted my thoughts on this below:

1. We have around 2000 KiwiSaver clients with ANZ.
2. If we assume that on average each client has five transactions a month (two employee contributions, one employer contribution, one interest payment from IRD and one withdrawal of Member Fees), plus one MTC payment each year, that is 61 transactions per client.
3. This makes a total of 122,000 transactions that our little business will report. To any observer, surely this would seem out of proportion to the size of our business and raise a red flag.
4. These transactions will also be reported by the ANZ reporting entity (double counting them.)
5. As we all know, all funds in KiwiSaver are locked in until the investor reaches withdrawal eligibility and the processes for pulling these funds out (from an AML/CFT) perspective are certainly not easy.
6. We have little hands on involvement with the vast majority of these transactions (which is how KiwiSaver was legislatively set up.)

Therefore, what is the value in our business reporting this information under our AML/CFT return?

I would appreciate any feedback or corrections if I have got this wrong or misunderstood....
On 17 July 2014 at 11:19 am Ally said:
Good work Murray.....We need someone to be watching the bureaucrats to make sure they don't come up with "make work" schemes just to justify their existence.......
On 17 July 2014 at 12:26 pm John Berry and Paul Brownsey said:
We agree with Murray W and SiFA on this. The term "settling" of transactions is well understood - it does not stretch to "arranging" transactions. While this is an inconvenient outcome for the FMA - this is the extent of the power given to them for transaction reporting.

As a fund manager investor money never touches our bank account nor do we have any authority over the fund bank account in which transactions are "settled". Money goes into an account of the trustee and only the fund trustee has authority to "settle" transactions. Yet we must report investor flows as if we settle them. Its not an onerous reporting requirement for us - but that's not the point - the FMA regards us as having settled transactions that clearly we don't and can't settle.
On 17 July 2014 at 2:34 pm Rossco said:
I agree wholeheartedly with the blogs to date and thanks Murray for raising the issue.
Carey, I agree with your comments regarding KiwiSaver and double counting but would suggest that this applies to any platform but the one transaction may be coiunted three times. By the adviser, by the platform and by the recipient of the fund manager receiving their portion of the funds.
On 17 July 2014 at 6:38 pm Buster said:
In addition to SIFA's core argument that the FMA has overreached its authority by "legislating by FAQ", Carey brings up what has been on my mind -- surely double-counting (and more?) will occur with various strata of REs reporting on the same "settled" transactions as defined by the FMA. I also wonder -- what exactly does the FMA plan to do with this "big data?"

Data collection is a waste of time and resource if there is no plan for meaningful analysis and application.
Exactly how will the FMA as our AML/CFT Supervisor interpret Carey's annual KS transaction numbers and dollar values of those transactions to improve our industry's ability to detect and deter money laundering and the financing of terrorism?

I doubt they know.

Not because the FMA isn't taking its responsibilities as an AML/CFT Supervisor seriously -- I assume they are.

But, to borrow a phrase from the information technology sector, the collection of data for Q. 6.1 I fear will be simply a case of Garbage In, Garbage Out.

The numbers FMA is requiring by law in Q. 6.1 are unlikely to lead to improved detection and deterrence of ML and FT.

FMA would be truly leading as a Supervisor in yet another new aspect of AFA compliance by first re-directing its efforts from meaningless data collection to providing ongoing AFA AML/CFT education and FMA-approved, sanctioned and free "plain speak" AML/CFT document templates.

The point of all of this is to safeguard our industry from ML and FT vulnerabilities, not to create more busy work!
On 18 July 2014 at 7:26 am Murray Weatherston said:
With respect to Carey, Rossco and Buster, your concerns about how to comply with FMAs FAQ guidance with respect to Kiwisaver, {whether it would be easy or difficult to collect and provide the information), the general double counting issue, and any questions about what FMA would actually do with all the information, these are all second order issues and I would hate to see this blog get distracted on those matters until the core issue is sorted.

The first order or core issue is whether or not FMA is interpreting the law as it is written correctly or not.

If FMA is guiding ultra vires, then those second order issues disappear - they don't matter.

If they are correct, only then do they matter. BTW, the answer to the Kiwisaver issue would be very simple - Carey would not be required to report on 120,000 transactions per year; it would only be new Kiwisaver contracts that she arranged in the year that she would count. And each new contract would count as 1.
On 18 July 2014 at 9:45 am Carey Church said:
Hi Murray
Thanks for your feedback. I am not sure that I agree with your interpretation of the KiwiSaver situation (based on the FAQ released). Hopefully someone from FMA will see this and provide some clarification.

Re the issue of whether the FMA is interpreting the law as it is written, as we both know, the law and wordings has many different interpretations. SIFA has one legal opinion, which suggests that they FMA are not interpreting the legislation correctly. Of course, if all lawyers/judges agreed on interpretations, they would all be out of a job.

I am not sure what the solution is. Do we get more legal opinions? Do we fund legal action to get the courts to sort it out?

I agree that a discussion on this blog raises the flag, but given that the majority of participants in the industry are financial advisers and not lawyers, I am not sure how a blog discussion can advance this issue.

Do you have any ideas on how we can support SIFA in their quest to get this clarified? More than happy to have a phone conversation with you if I can be of help.

In the meantime unfortunately, I (as do other reporting entities) have an obligation to comply.

Kind regards Carey
On 18 July 2014 at 11:53 am Matt Fenborn said:
Completely agree with Murray and SiFA. Firstly, the FMA are asking for information that they are not eligible to ask for under the Legislation. Secondly, the FAQ guidance is completely ambiguous and open to interpretation. Therefore creating confusion, misinformation and mudding the waters further rather than giving comprehensive guidance to allow market participants to report.
On 18 July 2014 at 1:10 pm Mark Ogden said:
I believe the crux of the matter lies in the question: What was the intent of the legislation? If it was in fact to detect and deter ML and FT, then reporting it twice doubles that data and makes detection even more difficult.
I suppose the upside for the FMA's "interpretation" for them is they could report they have detected twice as many cases of ML or FT perpetuating the notion their their interpretation was correct.
When the FMA acknowledge the wording can be interpreted differently, an FAQ doesn't change law. It needs to be tried, sent back or applied with reason.
I would suggest the legislation is in fact, how it is interpreted. The FMA have their interpretation, Philips Fox lawyers another and the powers to be that passed the bill would have seen it their way.
Any volunteers to test it?
Sure the FMA may take action and could make life difficult for any supposed "breach" but would they be right.
Do they really have nothing better to do?
"Legislation by FAQ" - I love it!
On 18 July 2014 at 1:11 pm Michael Warrington said:
The FMA stance implies that if I were to recommend an investor place a term deposit in a bank (under its annual prospectus) that we would be obliged to report this transaction. This is likely to result in double counting, because logically the bank will report the same transaction, which they have processed.

From my perspective this scenario becomes impossible for us to report if we have recommended a bank deposit but not guided the person as to which bank to use for such a deposit - personal choice of the client. We will not actually know if the deposit occurred, or with which entity because we played no role in the transaction (just the financial advice).

Murray, I agree, the FMA appears to approaching this with a 'tell us everything' approach implying they too are a little unclear on what they will then do with the data they are about to gather.
On 18 July 2014 at 1:55 pm w k said:
Advisers are required by regulation to undertake a certain degree of education, on-going training, etc. in order to comply and be competent in our practices. Therefore, I think it is a valid question to ask FMA how much practical experience and education pertaining to the work we do and services we provide do their staff have. If they don't even understand the job requirement and the practices, then I don't see how they are able to regulate at all. If that is the case, we can all talk, complaint, argue and disagree for the next decade, nothing is going to change. We'll still be as confused as the regulators.

So, in short, go back to the starting point of this mess, the people who create this "regulation or ideology". Just my thoughts.
On 18 July 2014 at 3:47 pm brent sheather said:
The FMA needs to be very careful. It risks losing its credibility in the same way the fadc just has and as the code committee did earlier on..remember some code committee members businesses got mystery shopped by consumer and failed.

I still laugh about that today. This is important because if the FMA execs really stuff up they won't get good jobs back in the industry when they leave the fma....lol
On 19 July 2014 at 9:44 am traveller said:
It would be good if the FMA could respond publicly through your website to the criticisms offered above, but I suspect they won't.
Brent says "it (FMA) risks losing its credibility". Does it have any?
On 20 July 2014 at 12:40 am Ellie Broderick said:
Losing it's credibility. It's gone. It started eroding with the first CEO's claim to be "the new sheriff". The AFA qualification chipped away further.

And the industry had mixed messages about the FMA "working with" versus "policing" the industry.

Then came the Ross debacle.

When the FMA said investors' need to take "personal responsibility" and the industry needed to tell the FMA about malpractice (self regulate??) the decline accelerated.

Comments were made about "old boys clubs" and we saw guidance notes used reinterpret the law (personal advice & KiwiSaver).

Then the FMA made blanket comments about the avoidance of bank sub-debt?? Doing an advisers job?

We've got the debacle of DIMS and now this.

Is there any credibility left to lose?

The FMA does little to support its stated goal of innovation as anything that doesn't fit it's ivory tower view of how the industry works is "interpreted" out of existence.

For a small industry the level of paper work, valueless qualifications required and reporting is such that slowly but surely there will be no choice and only the banks distribution arms will survive.

Sign In to add your comment



Printable version  


Email to a friend
News Bites
Latest Comments
Subscribe Now

Weekly Wrap

Previous News


Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 3.95 4.15 4.49
ANZ Special - 3.45 3.65 3.99
ASB Bank 5.20 3.89 4.05 4.39
ASB Bank Special - 3.39 3.55 3.89
Bluestone 4.44 4.44 4.29 4.34
BNZ - Classic - 3.49 3.55 3.89
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
Lender Flt 1yr 2yr 3yr
China Construction Bank Special - 3.19 3.19 3.19
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.65 4.80 -
HSBC Premier 5.24 3.54 3.20 3.69
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 3.97 4.05 4.39
Kiwibank 5.15 4.20 4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.45 3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Lender Flt 1yr 2yr 3yr
Pepper Money Near Prime 5.64 - 5.44 5.44
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.45 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.39 3.55 3.89
Sovereign 5.30 3.89 4.05 4.39
Sovereign Special - 3.39 3.55 3.89
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
Lender Flt 1yr 2yr 3yr
TSB Bank 6.09 4.19 4.35 4.69
TSB Special 5.29 3.39 3.55 3.89
Wairarapa Building Society 5.50 3.95 4.05 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.39 3.55 3.99
Median 5.34 3.96 4.09 4.39

Last updated: 21 February 2020 4:32pm

News Quiz

The maximum remuneration model for Australian life insurance advisers is to be set at what?

Upfront 40% + trail 20%

Upfront 50% + trail 10%

Upfront 50% + trail 20%

Upfront 60% + trail 10%

Upfront 60% + trail 20%


About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
Site by Web Developer and eyelovedesign.com