The Financial Markets Authority (FMA) recently sought submissions on the practical implications of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) in situations where reporting entities are transacting with other reporting entities, together with feedback on a draft Factsheet on Managing Intermediaries (Factsheet) setting out those implications. The Factsheet will supplement the Beneficial Ownership Guideline issued in December 2012 (Beneficial Ownership Guideline). The consultation paper can be found here.
The FMA correctly noted that some reporting entities are finding it difficult to determine the extent of their obligations to identify a customer's beneficial owner. The purpose of the consultation is to clarify the relevant AML/CFT Act obligations, and to assist the development and adoption by the market of practical processes and procedures.
Comments were sought on:
- Whether the practical suggestions set out in the Factsheet are appropriate, and any further practical or alternative suggestions were invited
- Any specific limits on the obligation to identify the "persons on whose behalf a transaction is conducted".
It is the obligation to identify persons on whose behalf a transaction is conducted that is proving to be both confusing and problematic in practice. The FMA's current view (as set out in a number of examples in the draft Factsheet) is that, for example, a broker dealing with a fund manager (eg to sell securities) has an obligation to do customer due diligence (CDD) on the underlying investors/clients of the fund manager, even though there could be hundreds or thousands of investors in the fund, none of whom have any material degree of ownership or control (as required for the first two limbs of the beneficial ownership test). This is in addition to the CDD that the fund manager itself has been required to do. We believe the suggested requirement is too broad, is not practical, and should require some level of control or ownership. To interpret it more broadly as the FMA has suggested imposes undue compliance costs on reporting entities (and ultimately their customers) and may disincentivise international organisations from dealing in the New Zealand market. The approach also appears inconsistent with international approaches we are aware of.
We note that Australia is also considering its AML/CFT requirements in relation to beneficial ownership, and consistent with the Trans-Tasman Outcomes framework between New Zealand and Australia, we should seek harmonisation between AML/CFT obligations between Australia and New Zealand as a longer term solution. In the meantime, we hope that the FMA will re-issue the Factsheet with a much more pragmatic interpretation of "persons on whose behalf a transaction is conducted" such that an element of ownership or control is required.
For more information on this subject, please see our submission to the FMA.