The Ministry of Justice (MoJ) is currently undertaking a substantive review of the AML/CFT (Class Exemptions) Notice 2018.
MoJ has released to their Industry Advisory Group (IAG) and selected industry stakeholders a consultation document in relation to the review. Lloyd Kavanagh and Sam Short in our team are members of the IAG, and the MoJ has agreed that we can also highlight the potential changes to our clients, to enable us to respond to the consultation.
Who should read this? Why?
All financial services providers and others who currently rely on a class exemption should read this alert and consider whether to contact us or the MoJ directly to ensure that removals or amendments of existing exemptions will not adversely affect them. Anyone who wants to apply for a new class exemption should also consider whether this is the best time to raise that with MoJ. Other businesses may also wish to consider the impact on them if changes are made that affect their suppliers or competitors.
What does it cover?
The scope of the substantive review is as follows:
Whether the existing class exemptions:
are fit for purpose and appropriate to retain; or
require any amendments to be made.
Whether any new class exemptions are appropriate.
The consultation proposes leaving many class exemptions as they are but proposes to remove or amend others and seeks submissions on any potential new class exemptions.
Outlined below are the exemptions in relation to which removal or changes are currently proposed (the Part numbers below are to the relevant Parts of the existing Class Exemption).
Part 3: Services provided in relation to certain retirement schemes
The proposal considers whether to expand the definition of “specified voluntary contributions” to allow for schemes to accept voluntary contributions outside of the exceptional circumstances currently provided for.
Part 5: Reporting entities whose customers are licensed managing intermediaries (LMI)
This proposed amendment of Part 5 to remove 1(b) which relates to CDD on beneficial owners (along with that to Part 6) follows on from Regulation 5AA of AML/CFT (Definitions) Regulations 2023 (which came in to force on 31 July 2023) which removes customers of a customers from the definition of beneficial owners.
Reporting entities whose customers are LMI’s are currently exempt from carrying out identity and verification requirements on the beneficial owner of the LMI. The current class exemption will expire on 31 December 2023. The proposal additionally extends the exemptions under 1(a) and 1(c) for a further 12 months until 31 December 2024 and will also be extended to include LMI Customers.
Part 6: Reporting entities whose customers are specified managing intermediaries (SMI)
The proposed amendments would remove 1(a) and 1(b) of this class exemption on the basis that it is no longer required as Regulation 5AA of AML/CFT (Definitions) Regulations 2023 removes customers of a customers from the definition of beneficial owners.
Reporting entities whose customers are SMI’s are currently exempt from carrying out identity and verification requirements on any beneficial owner of the SMI. The current class exemption will expire at the end of 2023. There is also an exemption to the requirement of performing enhanced customer due diligence due to the customer being a trust holding personal assets, this exemption is proposed to be extended until 31 December 2024 and will extend to cover SMI customers if you are a custodian.
Part 11: Casino loyalty schemes
The consultation document proposes changes to help clarify the scope of the existing exemption. The changes explicitly state that enhanced customer due diligence under section 22(1)(c) and cash transactions of $6000 or more are not exempt, and that the account monitoring requirements applies to transactions as defined in the Act (which already does not include gambling).
Part 13: Designated issuers that issue debt securities to specified subscribers through intermediaries
The MoJ is considering expanding the scope of this exemption to include perpetual preference shares, in addition to debt securities. The consultation document notes that the relevant AML/CFT supervisor is undertaking a substantive risk assessment on the potential widening of this exemption which will affect whether MoJ proposes any expansion.
New class exemption: Financial markets infrastructure businesses
The consultation paper includes the addition of a new class of exemptions for financial markets infrastructure businesses that operate clearing and settlement systems for securities and Central Securities Depositories, only two of which exist in New Zealand. Currently there are only two entities this exemption would apply to, NZClear – a wholly owned subsidiary of the Reserve Bank who are already exempt under the AML/CFT (Definitions) Regulations 2011 and subsidiaries of the New Zealand Clearing and Depository Limited (Trading as NZX Clearing) who currently have a ministerial exemption.
The consultation runs until 15 September 2023. The fact that the consultation has only limited circulation makes it important that potentially affected parties are proactive in understanding whether they will be affected, and then reaching out either directly to the MoJ or through a member of the IAG to ensure their voice is heard.
This article was authored by William Ma, a Law Clerk in our Banking and Financial Services team.
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