Today, the Financial Markets Authority (FMA) issued a formal warning to InvestNow Saving and Investment Service Limited (InvestNow) (Formal Warning) pursuant to section 80 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act), for failing to comply with the AML/CFT Act.
Links are available to the media release and the Formal Warning.
Who needs to read it? Why?
This update is relevant to all those who are ‘reporting entities’ supervised by the FMA under the AML/CFT Act, and who therefore incur compliance obligations. It highlights the FMA’s enforcement approach to breaches of the AML/CFT Act.
What does it cover?
InvestNow is a New Zealand-based online investment platform that provides access to KiwiSaver, managed funds, and term deposit investment options.
As context, James Greig, Director of Supervision at the FMA, noted that the FMA considers that DIY investing platforms are at higher risk of being targeted for money laundering or terrorist funding due to the highly liquid and digital nature of their business, citing the FMA’s 2021 AML/CFT Sector Risk Assessment.
Through routine monitoring for compliance with the AML/CFT Act, the FMA identified that InvestNow was in breach of the Act, and especially the requirements which relate to conducting customer due diligence, and having adequate and effective processes.
In the FMA’s view, InvestNow failed to complete customer due diligence, including (in summary) :
- obtaining sufficient information about the nature and purpose of the proposed business relationship from customers;
- taking reasonable steps to complete identity verification of customers and beneficial owners;
- conduct ongoing and/or enhanced customer due diligence on certain customers, including taking reasonable steps to verify source of wealth or funds; and
- establish, implement, and maintain an adequate and effective AML/CFT programme.
As part of the Formal Warning, the FMA has required InvestNow to:
- obtain information from its current customers to record their reasons for using the platform;
- complete customer identity verification on its current customers, amend its onboarding process to ensure customer identity is properly verified, and provide training to staff on this process;
- complete enhanced customer due diligence on customers that have made transactions which are complex, unusually large, or have an unusual pattern, amend its processes to ensure enhanced customer due diligence is undertaken when required, and provide training to staff on these processes;
- complete ongoing customer due diligence on customers where there has been a material change (such as the information they have provided or their typical trading behaviour) in the customer’s relationship with InvestNow, amend its processes to ensure ongoing customer due diligence is undertaken when required, and provide training to staff on these processes;
- review and revise its AML/CFT programme to ensure adequate and effective procedures are established for all types of customer due diligence and complex or unusually large transactions; and
- revise its AML/CFT programme based on an updated risk assessment that considers the nature, size, and complexity of its business, the products and services it offers, and the delivery methods of these products and services.
The FMA has required InvestNow to prepare a plan which describes how and when it will complete all the steps outlined above and submit it to the FMA by 31 October 2022. InvestNow must also complete all steps (to the extent that it has not already done so) by the 30 March 2023, or such other date as agreed to in writing with the FMA, and provide relevant documents and records to prove that the required steps have been taken.
In the meantime, InvestNow must also restrict withdrawals and transfers of financial products from customer accounts that require more information about their reasons for using the platform, identity verification, or further customer due diligence.
Our view
This media release and the Formal Warning reinforces our view that the AML/CFT enforcement environment is becoming increasingly rigorous.
Where requirements have not been met, the supervisors continue to make use of the range of enforcement mechanisms available to them.
This underscores the necessity for all reporting entities to ensure full compliance with the complete range of AML/CFT requirements. These are serious and intensive obligations, and underestimating or insufficiently prioritising them is increasingly likely to bring severe consequences.
What next?
If you have any questions in relation to the FMA’s Formal Warning or would like any advice about what it means for your business, please contact one of our experts.
This article was co-authored by Scott Yang, a Solicitor in our Financial Services team.
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