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Small part of business can mean big compliance costs

Many advisers are expressing frustration that a small part of their businesses can be responsible for increasing their compliance requirements significantly.

Thursday, October 23rd 2014, 6:00AM

by Susan Edmunds

That’s according to AML Solutions’ Richard Manthel, who said being caught by AML rules could mean a lot of work for small advice businesses in particular.

Reporting entities had to file their first AML annual return on August 30. They are also required to be audited every two years.

Manthel said advisers’ compliance costs had skyrocketed over recent years and there was frustration from many about their obligations under the AML rules.

“There’s a danger that an AFA who hasn’t got a massive book, a big client base or much funds under advisement, their compliance costs have gone through the roof in the past three or four years. If they haven’t got a strong income, they still have to do the same thing. Whether you have one client or 100, the costs are the same for audits, it’s not proportionate to the client base.”

Some were looking to take a DIY approach but that had let to substandard risk management processes in some cases, Manthel said.

He said it was particularly frustrating for advisers for whom insurance was almost all of their business, but who had a KiwiSaver product on the side. “They might have it for strategic reasons or as an extra source of income. Insurance is not captured under AML rules but KiwiSaver is. So for 5% of their business, they’re captured and have to meet the requirements of the act, with a compliance programme, annual reporting and being audited.”

Some were deciding to drop products that were a small part of their business but that put them in the regulator’s sights for AML.

“The market is maturing and every AFA is at a different part of the journey. Some are fully engaged and understand the process and some are still back at the frustrated stage.”

Strategi, which also offers compliance assistance said some common issues had been identified in advisers’ AML audits: Failure to fully personalise a template, failure to train AML officers and staff, incorrect identification verification, a lack of a mechanism to conduct robust PEP checks, a lack of rationale in the risk assessment document to justify risk ratings, failure to describe policies, procedures and controls for all the required elements in the AML programme, lack of document control and sign-off and “do what you say and say what you do”.

Strategi said: “Describe what you actually do in the AML/CFT Programme instead of providing a description of what you would ‘like’ to do. As an example, if you only provide annual reporting to senior management on compliance with the AML/CFT Programme then state that instead of stating you provide quarterly reports to senior management when that is not the case.”

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