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Audits a struggle for advisers

AML auditors say they are encountering many advisers struggling to meet their obligations under the regulations.

Thursday, November 13th 2014, 6:00AM 6 Comments

by Susan Edmunds

The FMA released its first monitoring report on the AML/CFT regulations this week, and reported high levels of non-compliance.

Businesses that are reporting entities under the AML rules have to be audited every two years, or as requested by the FMA.

Adviser Meredith Cornelius, who started up an audit business to help advisers access low-cost audits, said she had been frustrated at the level of non-compliance she had encountered.

She said many advisers were blaming the FMA, which was just administering a law that was being applied internationally.

“People aren’t getting it. Advisers are finding it very difficult. I wanted everyone to pass [their audits] and be fine but I can’t do their programmes and assessments for them, it’s up to them to be compliant...I’m frustrated because I wanted to keep the price down [but] it’s like a teacher marking a paper. If it’s a poor paper, poorly presented, not structured how it should be, it’s a lot harder and it takes a lot longer to go through it.”

She said she would not put her prices up but would consider offering those who failed their audits a follow-up for an additional fee.

Many advisers were angry about the obligations being placed on them. “In a way, they have reason to be. It seems the whole world is full of compliance but it’s not the FMA trying to get them. Look at other countries, the rules are similar," she said.

Cornelius said it should not be hard for adviser businesses to get their AML systems up to scratch. “Just read the legislation, there are towo main sections that outline what you have to do. This isn’t the FMA finding something to spend their day doing. It’s an international thing and AFAs are caught in it so be it, you just have to sort it and do it.”

Gavin Austin, of ABC Compliance, said a lot of advisers had problems getting their policy, process and controls right. “It’s something big organisations are so used to doing but when you flip it to a one-man band, I’m still struggling with how to advise them a bit because it’s very difficult for an individual to put on all these different hats.”

He said it was unclear how much help and detail an auditor could give and still meet the requirement for independence. “If you’re reporting to yourself all the time, what’s the point in that?”

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Comments from our readers

On 13 November 2014 at 10:08 am R1 said:
The problem I see is that we have advisors becoming auditors of what are essentially the Total Quality Management systems required for compliance. They have no experience and probably little training in TQM and so give broad advice about where an advisor is not compliant. Auditors need to have detailed experience of the systems they are auditing and provide specific actions required for the person they are auditing to become compliant; i.e. there should not need to be a follow-up simply because the auditor gave a detailed description of what was required. The auditors I recently hired admitted they were learning as they went along; i.e. we are funding their education and experience and ending up uncertain about whether we are truly compliant. This is not how auditor should work. Expecting advisors to know what these systems should look like is unreasonable and stupid unless they are properly trained in such things.

The most cost efficient and effective way to implement a compliant system would be for the FMA to provide a template system which can be cut to suit the advisor firm but the system, policies and procedures are standardised so everyone knows what they are doing is the right approach. Audits would then be about ensuring you are following the system; quick and low cost too.

From here I think we should either train the advisors or standardise the systems and cut out the currently very expensive and inconclusive audits. What do others think?
On 13 November 2014 at 5:35 pm alan clarke said:
I though the FMA’s job was to restore and build confidence in financial markets, so pray tell me why are they in the AML space ??

I am totally anti drugs and terrorists

No one even remotely suspicious gets to become one of my clients

As a pilot I do offer them free-of-charge parachute drops – no training needed - free WW1 RAF parachutes - oops, I forgot, the RAF didn’t have them in WW1 (sorry, can’t change that till I get CAA approval)

I don't take cash - never have - never will

No trust account and I don't handle clients money

It goes direct to Aegis (who have their own AML checks)

I do interview all clients in depth , at the outset

And again annually

I even get them to sign off in their IPS annually where their money came from (even though I knew that from the outset)

I hope that’s enough !!!

Because I didn’t apply to join the police, as far as I can remember

A lawyer told me the money launderers buy cafés and restaurants where they feed the cash from their ill gotten gains through the till as “coffee, cake and steak” sales

Perhaps the regulators could leave us alone, as the crims ain’t gonna come near us - we are too nosy with all our questions and processes

Perhaps they could look at cafés and restaurants that always look empty , but are still in business year in, year out

Actually perhaps the people who draw up the laws in NZ (in all fields) could visit those of us who work at the “coal face” sometimes, and actually consult us

That might help cure the great new NZ malady which I call “the great disconnect”

It was around 20 years ago at CAA when I was a commercial pilot

I survived 20 years as a top dressing and crop spraying pilot, but not because of anything the CAA did - I learnt what I needed to know from the experienced pilots - real “coal face” men

I also applied some common sense as taught to me by my farmer father – another “coal face” man

But if anything, “the great disconnect” in NZ seems to have gotten worse

I can’t remember being asked even once in 40 years by a regulator or lawmaker how they/we could all do better

P.S. The FMA and The Commission for Financial Literacy have still not asked to see my “26 years at the coal face” 2nd book, even though I am offering it to them at cost + $1

I don’t claim to be a great writer, but just maybe us “old coal face boys” have something worthy to contribute

Poor old NZ – just imagine where we could be as a nation, if only things were different
On 13 November 2014 at 11:18 pm alan clarke said:

no offence, but instead of TQM (whatever that means) can't we have PBCS ?

Plain B........ Common Sense

PBCS would first determine whether or not money launderers do in fact try to do so through financial advisers

They won’t coz we are too nosy and ask too many questions. We “coal facers” already know that but no one asked us !

But if the powers that be can’t accept that, then they must put experienced money laundering "coal face" detectives in front of us.

To teach is to be “pseudo detectives” - how exciting !

But wait – aren’t we supposed to be doing something else ?

Oops ! Nearly got overlooked – we are supposed to be helping ordinary Kiwis with their money.

That's OK - we supermen can cope with multi tasking and 80 hours per week - POC

But if we are busy doing what we ought to be doing, or are not of a detective bent, or are not trained to detect the super cunning crims, or are just not very cunning ourselves, how can we even remotely comply with a set of rules (written by “non coal facers”) to show we have been diligently “detecting” ? FIIK !

Sorry - an awful sentence - not much of an author

Oh no - that old dread is back - gold prospecting in WA is looking attractive again

Even snakes and flies look less annoying than AML, FMA, TQM, DIMS, LPT, FNZ, ACI, INDEX, LVR, PIE, REIT, ETF, MBS, RFA, HPB, PCBS, UMP, MS, NZD or AFA

Gold prospecting, even at only $1,100 per oz, is sounding better every day to this GOF
On 14 November 2014 at 10:50 am John Milner said:
It appears advisers out there are taking this all to personal. It's a case of the NZ Government responding to pressure from the rest of the world to put our big boys pants on and join the rest of the world.

It's not at all about picking on the advisers. Sure, everything in life could be done better and I'm sure there is plenty of rough edges the FMA will sort out but once again, it's about us all looking at the big picture and not always bringing it back to how it affects us as individuals.

We are supposed to be business owners that are viewed as a whole, not individually i.e. ex-crop dusters. So on Monday morning, get up, put on your big boys pants and operate as a professional business owner that is part of the NZ financial services industry, which as rumour has it, is part of the world financial services industry.
On 17 November 2014 at 10:02 am alan clarke said:
With apologies to Edmund Burke “The only thing necessary for the triumph of bureaucracy, and strangulation of our economy, is for good men to do nothing.”

We in NZ are all being overridden with rules and legislation for this and that and the other -just look around you) , and our economy and our freedom is under threat

So I am going to do something

I will be writing to my MP Mike Sabin and others - and is my first draft:

Dear Mike

I am an authorised financial adviser (AFA) of 26 years working up and down from Kerikeri to Auckland. I have written 2 related books, and also write weekly articles for APN regional newspapers.

I have a concern - recently Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) laws were introduced in NZ.

Somebody in Wellington thought that the money launderers would deal with AFA’s, and so we are now suffering extensive regulations, bi-annual audits, an over bearing FMA breathing down our necks, and this is costing us a lot of wasted time , stress, distraction from our real role, and an annual cost of over $3,000 to $6,000.

Now I am totally anti drugs and terrorists - totally

But no one even remotely suspicious person gets to become one of my clients - why ? Because I interview all clients in depth, at the outset

No money launderer is going to go to a financial adviser who asks a lot of questions ! And we do.

I interview my clients at the outset, and again at their annual review

I have been in 99% of their homes more then once.

I use the “know your client” concept before investing any money for anyone

I get them to sign off in their annual review where their money came from (even though I knew that from the outset)

I don't take cash - never have - never will

I don’t have a trust account and I don't handle clients money

The money clients invest with us comes from NZ banks who have already done AML checks, and then goes direct to Aegis, an investment platform and a division of ASB, who also have AML checks

When the AML and CFT legislation was introduced, I looked at my client base from every angle, but not one is even slightly suspicious

That’s why AML to me means “Absolutely Minimal Likelihood”

A prominent Auckland lawyer at a SIFA conference told me the money launderers buy cafés and restaurants, where they feed the cash from their ill gotten gains through the till as “coffee, cake and steak” sales

So I am asking you to talk to the Powers –That - Be and try and convince them of the folly of this legislation

This whole issue could simply be covered in the AFA code of conduct – another clause that requires us to report suspicious activities – we are already required to report other advisers who are not acting appropriately

May I suggest a much more effective spend of the taxpayers money that currently goes to AML officials in salaries, office rents, mad various other expenses.

“NZ green” grows really well in Northland and is very strong too

I was a commercial pilot for 20 years - a long-time ago - nowadays I fly a motor glider, so I know a bit about aircraft. A helicopter cost over $1,000 per hour to look for marijuana plots in the bush

A small modern light sport aircraft uses 10 liters of fuel per hour and costs well under $100 per hour to run. (The US govt use them on the Mexican border )

If the govt/police bought one (cost $150,000) and flew it on surveillance for 300 to 600 hours pa. the total cost (fuel, maintenance, insurance , pilots wages, etc) would be in the region of $150,000 pa.

$150,000 is the same as the salary for just one senior official sitting in a Wellington office, supervising AFA’s who are not uncovering any money launderers and not likely to.

A little “spot the drug plot” plane would be a much better spend of tax payers money

In summary

AFA’s are unlikely to uncover many drug dealer and money launderers

Yet we are burdened with a mountain of unjustified paper work and considerable costs

Please ask the Powers-That-Be to urgently review the AML regulations as they affect AFA’s

With a view to dramatically relaxing our burden

Your sincerely

Alan Clarke
On 18 November 2014 at 9:20 am alan clarke said:
Why do I feel so strongly about AML ?

Because I sat in an A & E ward 3 years ago with a much loved close relative after a drug overdose and waited for 10 hours to see if they would live or die - and it was touch-and-go

Watching a monitor showing BP at 40/20 and heart rate at 200 has had an ever lasting effect on me

As a result of that I am totally against drug dealers

I want to see more money spent on "coal face" policing of NZ drug dealers

Not the hugely expensive and tree wasting folly that that someone has foisted on us AFA's that will be to no avail

I am sure that 95% of AFA's do their "know your client" interviews with dozens of questions, so the money launderers won't come near us

I guesstimate the AML folly will cost me $5,000 in time and money

If the FMA would grant me an AML exemption, I will happily donate $5,000 pa to "coal face" front line drug policing

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