Changes to the AML/CFT Act Regulations
The Ministry of Justice (MoJ) has reviewed the Anti-Money Laundering and Countering Financing of Terrorism Act (the AML/CFT Act) to assess its performance and whether any amendments should be made. This review commenced on 1 July 2021, when the MoJ has started accepting submissions from the public. Following the consultation stage, the MoJ released the Statutory Review in November 2022, which was tabled in Parliament.
The draft package of regulations, which aimed to respond to the MoJ review, focused on several crucial issues, some of which are:
Definitions and terminology that are out of date, unclear, or not fit-for-purpose.
Obligations which are set to a standard of risk higher than actual risk, causing unnecessary costs to business.
Gaps in regulations relating to known high-risk areas of cash, virtual assets, high-risk countries, and high-risk customers.
The amendments will enter into force in three stages. Stage 1, starting on 31 July 2023, will provide relief to businesses and clarify existing obligations. Stages 2 and 3 will enter into force respectively on 1 June 2024 and 1 June 2025. They will introduce new obligations for entities that are already covered by the AML/CFT Act, and introduce obligations on sectors that are not currently covered. (You can read more about the review process here).
This post will only address some of the regulatory changes and it will focus to the changes relating to Stage 1, as these are changes that reporting entities are expected to consider immediately.
Definition of Beneficial Owners
Section 5 of the AML/CFT act defines a beneficial owner as an individual who has effective control of a customer on whose behalf a transaction is conducted, or owns a prescribed threshold of the customer on whose behalf a transaction is conducted. (See also the Beneficial Ownership Guideline).
The amended regulations now clarify that “beneficial owner” also includes a person on whose behalf the transaction is conducted that is a customer of a customer, but only if the person has ultimate ownership or control of the customer.
Country with insufficient AML/CFT systems in place
Section 22 of the AML/CFT Act prescribes that enhanced customer due diligence (enhanced CDD) is to be done on a non-resident customer from a country with insufficient AML/CFT systems in place.
The amended regulations now clarify that a country with insufficient AML/CFT systems in place is a country identified by the Financial Action Task Force as being a high-risk jurisdiction subject to a call for action. The list currently includes the Democratic People’s Republic of Korea (also known as North Korea) and Iran.
Virtual Asset Service Provider
The amendments regulations clarify that “virtual asset” means a digital representation of value that can be digitally traded or transferred, or used for payment or investment purposes; but it does not include a digital representation of a fiat currency, or a financial product (i.e., a debt security, an equity security, a managed investment product, or a derivative).
Moreover, the amendment regulations declare that a virtual asset service provider, who provides safekeeping or administration of virtual assets on behalf of any person, to be a financial institution.
Changes for Designated Non-Financial Businesses of Professions
Several changes will apply to designated non-financial businesses or professions (DNFBPs):
Where a DNFBP has an existing non-captured customer, and receives captured instructions by the customer, the DNFBP is required to perform CDD on such customer, to the appropriate level.
Where a DNFBP provides a captured service to an existing customer in circumstances outside of an ongoing business relationship, the DNFBP is not required to CDD on the customer, unless there are reasonable grounds to doubt the adequacy or veracity of the documents, data, or information previously obtained or the level of risk involved otherwise requires it.
Where a DNFBP makes or receives a prescribed transaction on behalf of a customer from or into its trust account held with another reporting entity, where applicable, the DNFBP must submit a prescribed transaction report and include any unique identifier it receives to enable the matching of complementary reports.
New exemptions
The amended regulations extend and re-adjust some exemption, most notably:
Charitable entities issuing small loans (less than $6,000) that cannot be repayable in cash are now exempted from all provisions of the AML/CFT Act.
New exemption from all provisions of the AML/CFT Act in respect of captured services provided by a company that is a corporate trustee or a nominee company that is subsidiary of a reporting entity in New Zealand.
Links to the Amendment Regulations
Anti-Money Laundering and Countering Financing of Terrorism (Exemptions) Amendment Regulations 2023
Our Opinion
The consultive approach taken by the MoJ is commendable and we can expect that, because of such approach, many stakeholders will welcome the changes set forth in these amendment regulations. Moreover, the amendments will enter into force gradually, in three stages spanning a couple of years. We hope that this plan will give enough time to reporting entities to be prepared to implement the changes, when required.
However, some changes were not included in this tranche as the MoJ assessed that, because of their importance, amendments to the regulations would not have been sufficient and amendments to the primary legislation (i.e., the AML/CFT Act) would have been more appropriate. Some of these changes – for example, related to the enactment of a risk-based approach for enhanced CDD on low-risk trusts (as opposed to the current prescriptive approach), and the relaxation of address verification requirements for standard CDD – were long-waited changes by reporting entities. Even though the point of view of the MoJ is understandable, it goes without saying, the Parliamentary process for amending the Act will mean that reporting entities will need to wait further to see these changes coming into force. In this instance, a long term vision for the longevity and the effectiveness of the regime (amendments to the Act as opposed to amendments to the Regulations) has been prioritised.
What’s Next?
Potentially all New Zealand reporting entities will be affected by these regulatory changes, some in a substantial way, other less so. Regardless, all reporting entities would be required to review their policies, procedures and controls to ensure that they are compliant with the regulations.
If you need any assistance navigating the numerous changes to the regulations, get in touch and we will help you with:
Figuring out what is relevant for your business; and
Developing adequate policies, procedures and controls that are fit for your specific business.
