An adviser's guide to AML Compliance

The FMA has just released its second annual AML Monitoring Report detailing its 2016 monitoring activities and report card on the 800 Reporting Entities (REs) under its supervision.  Good Returns asked Meredith Cornelius of Financial Strategies Nelson to comment on her reading of the report and what it all means for the smaller retail financial adviser and their practice.

Friday, December 16th 2016, 11:33AM

As a qualified AML auditor and AFA in her own small practice, Meredith provides an unique perspective on AML compliance for other advisers like herself advising a client base made up of New Zealand “mum and dad” retail clients saving for, or in, retirement.   

As one of three supervisors, the FMA is charged with overseeing AML compliance for about 800 financial service providers.  These range from the ‘big end of town’ to the smaller independent or product-aligned AFA providing financial advice and service on Category 1 products deemed Reporting Entities (REs).  Considering my own compliance programme and activities as well as my experience auditing scores of programmes for other retail advisers like myself, there are 4 key takeaways from the FMA’s latest monitoring report.

1 - Staff Training

Under section 57 of the Act certain staff must be trained on AML/CFT matters.  The FMA is very clear that REs who do not carry out staff training are in breach of their obligations.

I am often asked about what constitutes a compliant training programme for the solo AFA who may have a single administrative staff member, or none at all.  For those small businesses, AML compliance may be limited to simply conducting Standard or Enhanced CDD on typical New Zealand clients in practice (driven by the rules prescribed by wraps and product providers), so what more is there to learn?

Maybe not a lot more. Regardless, the FMA is clear that Section 57 of the Act applies to all REs regardless of company size and your activities and documentation must include evidence of sufficient and regular AML training for you and your staff. 
What might sufficient and regular AML training then look like for the small practice?  

AML training doesn’t have to be onerous nor involve expensive, but it is required.  Use the FMA website as your ‘go to’ AML resource.

2 - Suspicious Transaction Reporting (STR):

This year’s FMA monitoring report states that ‘… we are particularly concerned about the continued low level of filing of suspicious transaction reports (STR) by REs …’

Given the types of clients typical of the small retail adviser business, ST’s are unlikely and I suspect this concern relates to the large transaction volumes at the ‘big end of town.’  Regardless, you need to ensure the topic of STR is covered in your written AML compliance programme document to achieve full AML compliance.  Here are some simple steps to follow around STRs:

3 - Sufficient Due Diligence for High Risk Clients:

Again, given the types of retail clients that AFAs generally advise (‘mums and dads’ and/or their family trusts), it is unlikely that we face ‘high risk’ situations.  Again, as an RE you still need to understand what defines a high risk client and include a section on your policies, procedures and controls when dealing with them.  This could simply be a statement that ‘ … our policy is not to engage with any clients deemed ‘high risk’ …’

To be clear, a high risk client isn’t necessarily the same as a client requiring Enhanced CDD (e.g., a family trust).  A high risk client is more likely one that is: 

Finally, if you are approached by someone requesting you engage with them in an ‘unusual’ manner that appears suspicious, even if you do not engage further with the person if you deem the request suspicious, document the request in your Suspicious Reporting Log and report to the Financial Intelligence Unit (FIU). 

4 - Governance and Culture:

The FMA has identified the need for better corporate governance to set the right culture within the organisation for effective AML compliance.  Ultimately improved corporate governance helps better identify ML/FT risks and that is good for the entire financial system.  My view is that the FMA is speaking again to the ‘big end of town’ with larger corporates and their compliance programmes.  But the observation remains relevant for the small retail financial adviser and their practice in the following ways: 

 

Meredith Cornelius is a practicing AFA and holder of the globally recognised CAMS designation – Certified Anti-Money Laundering Specialist. These two qualifications combine to position her as a uniquely qualified AML/CFT audit alternative.

Tags: AML

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