The Financial Action Task Force (FATF) has released the third Follow-up Report & Technical Compliance Re-Rating (FUR) on New Zealand’s anti-money laundering and countering financing of terrorism (AML/CFT) regime (Report).
The Report can be found here, and follows the 2021 Mutual Evaluation Report (MER) of New Zealand by the FATF, which we have discussed in detail here.
Who needs to read this? Why?
As with the MER, the Report will be of particular interest to the governmental bodies involved in AML/CFT regulation, as an indication of where the FATF considers efforts should be targeted.
That said, it will be of use to reporting entities operating within the regime, as identifying its weaker points can assist them in assessing where risk in their business models may sit and where more care may need to be taken to balance that.
What does it cover?
The FATF is an inter-governmental body that develops and promotes policies to protect the global financial system against money laundering and terrorism financing. The Report contributes to the reform which has occurred over the last decade within New Zealand’s AML/CFT space (particularly in recent years, with the MER and the Statutory Review of the regime). This reform has been targeted at both detecting and preventing money laundering and the financing of terrorism, but also bringing New Zealand into line with international standards and our major trading partners.
The MER was adopted by the FATF in February 2021, which placed New Zealand into enhanced follow-up based on its findings and resulted in the 1st FUR in June 2022 and the 2nd FUR in June 2023.
This 3rd FUR looks at New Zealand’s progress in addressing the identified deficiencies in its technical compliance, specifically with the FATF’s Recommendations 14, 16, 19, 22, and 23. It does not cover the effectiveness of the regime, which is the other category of assessment carried out by the FATF in the MERs.
The Report’s key findings
Recommendation 14
The MER rated the New Zealand regime as partially compliant with Recommendation 14 (which deals with money or value transfer services). The Report has re-rated this to largely compliant, with all but one of the criteria considered met – the other instead being mostly met, due to insufficient coordination between some authorities in identifying unregistered money or value transfer service providers.
Recommendation 16
The Report rated the New Zealand regime as largely compliant with Recommendation 16 (which deals with wire transfers), showing an improvement from the partially compliant rating in the 2021 MER. The criteria under this were split between partly met, mostly met, and met, and there remains scope for improvement.
These elements to improve include, for instance:
- the exclusion of credit and debit card transactions from the definition of wire transfer if the credit or debit card number accompanies the transaction;
- the powers of competent authorities and law enforcement agencies to access information not applying to domestic wire transfers under NZD1000;
- there being no explicit requirement to stop executing a wire transfer where beneficiary information is missing;
- there being no explicit requirement for intermediary institutions to retain originator information, or include collected beneficiary information, with a wire transfer (rather than just to provide the originator information as soon as practicable);
- there being no explicit requirement for intermediary institutions to have risk-based policies and procedures for determining when to execute, reject, or suspend wire transfers lacking required information;
- there being no explicit requirement that beneficiary institutions take reasonable measures in terms of post-event monitoring to identify international wire transfers lacking required information; and
- there being no explicit requirement for money or value transfer service providers to review both ordering- and beneficiary-side information to determine whether to file a Suspicious Activity Report.
Recommendation 19
The Report rated the New Zealand regime as compliant with Recommendation 19 (which deals with higher-risk countries), up from the partially compliant rating of the MER. All of its criteria were considered to be met. In particular, the Report identified a number of specific regulatory changes that contributed towards this upgrade.
Recommendation 22 and 23
Lastly, the Report rated the New Zealand regime as largely compliant with Recommendations 22 and 23 (which deal with customer due diligence and other measures for designated non-financial businesses or professions), both of which were considered partially compliant in the MER.
The criteria for each of these was also spread between partly met, mostly met, and met – these broadly cover the application of the regime to non-financial institutions, such as Dealers in Precious Metals and Stones (DPMS), pawnbrokers, lawyers, accountants, real estate agents, and trust and company service providers.
Identified deficiencies that remain outstanding include:
- the absence of an explicit requirement to identify individuals holding senior management positions when no natural persons can be identified;
- some inconsistent use of the definition of ‘customer’;
- the exemption of DPMS from parts of the AML/CFT regime; and
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DPMS only being required to audit their AML/CFT compliance upon a supervisor’s request.
Our view
The net result of the Report is that 5 Recommendations with which New Zealand was rated partially compliant in the MER are now rated either compliant (1) or largely compliant (4). With the other upgrade from partially compliant to largely compliant in the 2022 FUR, this means that half of our 12 partially compliant ratings in the MER have been re-rated upwards.
While New Zealand is evidently taking steps in the right direction, it is important that progress continues to be made towards refining the AML/CFT regime and improving compliance with it. In the FATF’s view, New Zealand still has yet to address some key issues of concern.
As the Report covers technical compliance rather than effectiveness, the focus is more on the formal state of the regime than how well it operates in practice. That said, effectiveness is another core assessment of the FATF, and all reporting entities (not just the Government) have a role to play, and a stake, in the improvement of our regime.
What next?
We expect the various regulatory and policy bodies in New Zealand will be reflecting on the Report’s findings as they formulate the next steps in the ongoing reforms to the AML/CFT regime. The criteria which the FATF have highlighted as being areas for improvement will no doubt be considered carefully, with a particular mind towards the next MER (currently expected in 2029).
If you have any questions about the Report, the MER, the FATF Recommendations, or the AML/CFT regime more generally, please contact one of our experts.
This article was co-authored by Tayla Robinson (Solicitor), Andrew Walker (Law Clerk) and Sam Short (Senior Solicitor).
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