New Zealand's AML reforms will relax due-diligence rules for trusts

Thursday, 10 November 2022
New Zealand's Ministry of Justice has announced proposals to amend the country's anti-money laundering (AML) regime, in particular relaxing some of the due-diligence rules for trusts.
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The plans are based on the conclusions of the ministry's review of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, which itself followed the Financial Action Task Force (FATF) mutual evaluation report in April 2021. A public consultation was held at the end of 2021 and the review report has now been tabled in parliament.

The report makes more than 200 recommendations for legislative change, but as yet only a few reforms have been announced as definite. They include relaxing the requirement on businesses to verify the address of most customers, doubling the time allowed for businesses to submit prescribed transactions reports (PTRs) from ten to 20 days and exempting registered charities from AML obligations when providing small loans.

Other recommendations from the report include: removing the blanket requirement for enhanced customer due-diligence for trusts; considering extra exemptions and a code of practice around high-risk customers, to address concerns around financial inclusion and de-risking; expanding the politically exposed person (PEP) requirements to include domestic PEPs; and further consideration of the regime's supervisory model, in particular consolidating to a single supervisor.

It also proposes to bring virtual asset service providers into the class of reporting entities in line with FATF's definition and advises increasing available AML non-compliance penalties, as well as introducing the ability to restrict, suspend, or cancel registration or licensing and for directors, senior managers, employees, and/or agents to sometimes be held responsible.

The government should also consider whether the suspicious activity reports (SARs) regime should have a less-strict timeframe and differentiate between initial suspicions and having reasonable grounds to suspect, the report notes.

The report accepts that New Zealand's AML legislation has not been applied with a sufficiently risk-based approach, with some requirements framed in an overly-prescriptive way and others lacking sufficient guidance for businesses. This has meant that the regime is both less effective and more onerous than it should be, especially for small businesses, with an estimated annual cost of about NZD260 million.

'Mostly removing the address verification requirement resolves the difficulty many reporting entities had in practice around meeting it', comments law firm Minter Ellison. 'Removing the blanket requirement for enhanced CDD around trusts recognises that many are not actually high-risk, and allows for a more proportionate (i.e. risk-based approach) to be taken.'

The ministerial announcement indicates some of the changes will be made quickly, with regulations being issued in the coming months, said the firm. However, many of the report's recommendations are framed as an intention to look more at issues and consider on further analysis and consultation whether and what changes should be made. Progressing some of these recommendations will continue over a long period of time, it noted.

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