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Identity verification requirements 'empire building'

[UPDATED] An Auckland financial adviser wants a rethink of the identity verification requirements for AML.

Monday, September 23rd 2019, 5:00AM 5 Comments

Gavin Austin

Adviser Tom Watson has been lobbying MPs and Government ministers about his concerns regarding the identity verification process required to comply with the AML supervisors' identity verification code of practice.

That code requires that any copied ID documents have been certified by a trusted referee within the past three months.

Watson said he had no problem with the AML/CFT legislation, which set out that all reasonable steps had to be taken to ensure ID information was accurate.

But he said the code of practice was the FMA "empire building" and adding extra requirements.

“The identity code referred to clearly points out that it is not mandatory but is suggested best practice. Therefore the three months is not mandatory however all fund mangers and financial service providers are terrified of getting pinged by the FMA or AML auditors for not complying.”

He said it was “unbelievable” the identification became useless after 92 days when the person’s details remained the same. "Their name and date of birth aren't going to change," he said.

"The older investors just say 'forget it, let's not do that, I'll just leave the money in the bank' or they go and buy a residential property, so it affects capital markets."

It was particularly an issue for people who lived rurally or for whom it was hard to travel, he said.

He said investment markets needed to function smoothly and not be burdened by "ill-thought" rules.

Drivers' licences and passports – each valid for 10 years – were issued by dependable Government systems, he said.

Watson said the three-month requirement should be scrapped and all certification should be accepted as sufficient and reasonable and in the clients' interests.

He approached Simon O'Connor, who passed the issue to Justice Minister Andrew Little, who said a three-month term was standard practice to ensure the integrity of a document.

Gavin Austin, who runs compliance firm ABC, said verification should not be a major issue when advisers were meeting clients face-to-face.

But he said there were concerns about banks imposing a three-month limit on address verification.

“It’s an extra onus that as far as I understand it does not appear anywhere in the legislation.”

FMA spokesman Andrew Park said the code of practice was applicable to all reporting entities supervised by the three AML/CFT supervisors and did not belong to the FMA.

"Paragraph 11 of the COP makes clear that when a trusted referee is certifying documents, they are not just confirming that the copy matches the original document, but also certifying that it “represents the identity of the named individual (link to the presenter)”.  For that purpose of identification it is reasonable to have a timeframe for when the certification must take place.

"The code of practice provides a safe harbour for reporting entities - it is not mandatory.  Reporting entities can opt out (following the procedure in the Act), and can then adopt their own procedures for meeting the requirements of the AML/CFT Act.  The advantage of following the Code is that, as a safe harbour, it provides certainty to reporting entities about procedures that will be taken as meeting the legal requirements.”


Tags: Adviser Business Compliance AML CFT compliance Gavin Austin

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Comments from our readers

On 23 September 2019 at 9:58 am Graeme Tee said:
I know what the FMA will say, they will say it is ok for a fund manager to do this when you are trying to get money out from a deceased estate and the certification on the death certificate is more than three months old. We have this in writing. How this aides in the Countering of the Financing of Terrorism is anyone’s guess but it appears that Government thinks a forged document that is less than three months old is better than a document that is more than three months old.
On 23 September 2019 at 2:46 pm Rob Dowler said:
Totally agree with the comment about the craziness of the bank three month limit on address verification. Just been there as executor for an estate. I provided the lawyer with valid documents but, by the time probate was approved, the address verification document provided to the lawyer had passed three months, meaning the bank rejected it and I had to provide a new one. Really!
On 23 September 2019 at 5:56 pm gavin austin adviser business compliance said:
Just as a matter of clarification. The Identity Verification Code of Practice (The original One) stated that “Complying with a code of practice is not mandatory”. Subsequent amendments states on page 2-Quote, “” What is this code of practice for? This code of practice provides a suggested best practice etc””. So it’s not a “legal” requirement. However, FMA and other supervisors have decided that this is the measure they will use when they look at AML/CFT compliance. The Banks and others have decided that they want to play by those rules as they don’t want to upset the relationship, they have with FMA ie they don’t want to rock the boat. Also, some institutions have taken this further and won’t accept a utility statement or other proof of address if the document itself is more than 3 months and some have rules that say 6 months. Seems like they have made their own rules and we all must just suck it up. On a brighter note for sole practitioners who don’t have employees they don’t have to be their own Compliance Officer but can engage a third party person or entity to do that for them.
On 24 September 2019 at 8:08 am Chris Hardcastle said:
There is an even more interesting part of all of this.
The Act doesn't even REQUIRE provision of a RESIDENTIAL address for identification purposes.

Section 15 "Standard customer due diligence: identity requirements" states;

"the person’s address or registered office; and
(e) the person’s company identifier or registration number; and
(f)any information prescribed by regulations."

It would appear a P.O. Box or some other address (such as a work place) would be sufficient (other than for regulatory requirements). However, we all obtain residential address details.
On 24 September 2019 at 12:17 pm Graeme Tee said:
It's a dog's breakfast – Code of Practise says it's not mandatory yet guidance notes say certification must be within three months. Latest guidance from FMA says expired passports are okay (with an exemption report) and yet fund managers still say sorry, can't get your money out and with FMA approval.

Various standards apply in different industries depending on which of the three regulators you are dealing with. It needs a good clean up with standardised requirements otherwise the real money launderers will flow to the weakest link.

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