A Statutes Amendment Bill (Bill) was introduced to Parliament yesterday. Among other things, this proposes four changes to the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).
These are separate to the changes to the AML/CFT Act proposed in the recent Cabinet Paper (which we have previously discussed) – and, in particular, cover the address verification requirement that was left out of them.
Who needs to read it? Why?
We recommend that all reporting entities pay attention to the Bill – while some of its changes will only impact some types of reporting entities, others will have an effect on them all.
What does it cover?
The Bill proposes four changes to the AML/CFT Act:
- amending the address verification requirement such that it (in the words of the Bill’s Explanatory Note) “only has to be verified by a reporting entity according to the level of risk involved in the transaction”;
- extending the time period for reporting entities to submit prescribed transaction reports from 10 to 20 working days;
- extending the time period for law firms in particular to submit suspicious activity reports from three to five working days; and
- amend the exclusion of cheque deposits from the definition of an “occasional transaction” to only exclude cheque deposits “made at a registered bank or non-bank deposit taker”.
These mostly reflect changes that were proposed in last year’s Draft Regulations but were subsequently removed due to needing legislative rather than regulatory changes, although there are a couple of notable changes that we discuss below.
Our view
A Statutes Amendment Bill is generally intended to cover a smorgasbord of minor legislative changes which are not expected to be controversial and should be able to be passed through Parliament relatively quickly.
As we said in relation to the Cabinet Paper earlier this month, we support the making of changes to the AML/CFT Act that can reduce inefficiencies in compliance and allow resources to be focussed on high-risk areas.
Address verification: The proposed change here for address verification essentially allows a reporting entity to explicitly take the level of risk into account in deciding on the reasonable steps to take to verify address (and registered office). Given address verification falls outside the Amended Identity Verification Code of Practice 2013, and it was typically left to reporting entities to decide what was appropriate, it is not clear exactly what the implications are here. The supervisors are clear that there is never zero risk, so even a risk-based approach will always require something – and there are relatively few ways in which people are able to show evidence of address.
This proposal is different (i.e. narrower) from that proposed in the Draft Regulations, which exempted from address verification requirements (other than where enhanced customer due diligence was required) where a reporting entity was satisfied, according to the level of risk involved, that the address in question was a genuine one. While that drafting removed the need to link the address to the customer, this proposed change does not – and that linking is where reporting entities generally find the most difficulty.
Expressly connecting this requirement to the risk-based approach that underlies the regime as a whole will hopefully give reporting entities some comfort when deciding how far they need to go to verify address, but this is unlikely to provide the fundamental change that many reporting entities have been hoping for.
In our view, removing the significant barrier to financial inclusion that the address verification requirement poses is long overdue. The question is whether this modest change goes far enough. However, those concerned will need to weigh carefully whether advocating for a more far-reaching change may go beyond the intent of a Statutes Amendment Bill, and cause even this modest change to be deferred. On the other hand, it is not clear when another opportunity may arise to address this issue, or as a practical matter how the change may relax what reporting entities are comfortable doing in practice.
Timeframes for PTRs: The proposed change for prescribed transaction reporting universally expands the time period within which they must be made from 10 working days to 20 working days after the relevant transaction. This differs from the Draft Regulations, which only expanded the time period where issues relating to the use of an automated system prevented reporting in time. This change is more straightforward, and avoids the difficulty of defining what exactly would constitute an issue with an automated system.
Timeframes for lawyer SARs: This was forecast in the Draft Regulations, and is to be welcomed for the reasons set out then. Given the additional issues lawyers need to consider to ensure they are not inadvertently disclosing clients' privileged information in making suspicious activity reports, it is reasonable to give them a further two working days to do so.
Restricting the cheque exclusion: This was forecast in the Draft Regulations, and should be uncontroversial.
What next?
The Bill has only just been introduced to Parliament, and it is not yet clear when it will have its First Reading. Given that the Bill also proposes changes to dozens of other pieces of legislation, debate around other parts may impact that timeline even if the AML/CFT Act’s changes are uncontroversial.
If reporting entities are of a mind to submit on the Bill, the Select Committee stage of its progress through the legislative process would be a natural opportunity. Reporting entities may want to consider submitting that the change on address verification should take essentially the same form as that which had been proposed in the Draft Regulations. Our view is this should not be “controversial”.
If you have any questions regarding the Bill, the reforms to the AML/CFT Act, or the regime more generally, please contact one of our experts.
This article was co-authored by Sam Short (Senior Solicitor) and Andrew Walker (Law Clerk) in our Financial Services team.
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