New Zealand has an advanced, highly globalized economy and relies on a wide range of international trading partners in Australia, East Asia, North America, and the European Union. In order to protect its economy and maintain public confidence in its financial system, New Zealand implements robust AML/CFT regulations designed to detect and prevent financial crimes such as money laundering and the financing of terrorism. Those regulations are enforced by the Financial Markets Authority (FMA) which is the country’s principal financial regulator.
Given the importance of the FMA to the financial services sector in New Zealand, it is important that banks and other financial institutions understand how the regulator operates, and how to achieve AML/CFT compliance.
What Is the Financial Markets Authority? (FMA)
The Financial Markets Authority was established in 2011 as an Independent Crown Entity under NZ’s Financial Markets (Regulators and KiwiSaver) Bill, and later expanded its mandate under the Financial Markets Conduct Act 2013. The FMA replaced the NZ Securities Commission and was introduced as part of the governmental response to failures in the previous regulatory regime which had led to investor losses, and the collapse of several companies.
The FMA’s stated vision is to ‘promote and facilitate the development of fair, efficient, and transparent financial markets’ in New Zealand. The regulator is responsible for ‘enforcing securities, financial reporting and company law as they apply to financial services and securities markets’. In that role, the FMA is responsible for regulating ‘securities exchanges, financial advice providers and client money or property services, auditors, trustees and issuers – including issuers of KiwiSaver and superannuation schemes’. The FMA oversees compliance with a range of financial markets legislation, including New Zealand’s primary AML/CFT regulation: the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
In enforcing financial regulations and providing oversight to NZ’s financial institutions, the FMA sets out the following strategic priority areas:
- Governance and culture
- Conflicted conduct
- Capital market growth and integrity
- Sales and advice
- Investor decision making
- Effective frontline regulators
- FMA effectiveness and efficiency
In its role as regulator, the FMA has the following responsibilities:
- Investigation and enforcement: The FMA investigates incidents of noncompliance with AML/CFT legislation. In this capacity, the FMA aims to address behavior that could harm New Zealand’s financial system and to raise national AML standards.
- Monitoring and supervision: The FMA assesses and monitors compliance with New Zealand’s AML laws and evaluates the conduct and competency of its banks and financial institutions.
- Policy and guidance: The FMA provides New Zealand’s banks and financial institutions with information and guidance in order to help financial professionals comply with legislation.
- Education and information: The FMA partners with public and private organizations in order to promote financial compliance education and distribute educational resources to financial institutions.
Licensing: The FMA is also responsible for issuing licenses to obligated New Zealand financial service providers under the terms of the Financial Markets Conduct Act.
Following Financial Action Task Force (FATF) guidance, the FMA requires banks and financial institutions in New Zealand to take a risk-based approach to compliance, deploying an AML/CFT response proportionate to the risks that they face. In practice, this means that New Zealand firms must develop an AML program featuring the following measures and controls:
- Customer due diligence: Firms must establish and verify the identity of their customers by performing suitable due diligence. Customers that pose a higher AML/CFT risk should be subject to enhanced due diligence measures.
- Transaction monitoring: In order to detect suspicious transactions, New Zealand firms must monitor their customers’ transactions for suspicious activity such as unusual patterns or unusual frequencies of transaction.
- Sanctions screening: Firms in New Zealand must monitor international sanctions and watch lists to ensure that their customers are not subject to economic sanctions measures.
- PEP screening: Politically exposed persons (PEP) pose an elevated AML risk. Firms should screen customers on an ongoing basis to establish their PEP status.
- Adverse media monitoring: News stories often indicate that customers are involved in financial crime. Firms in New Zealand should monitor for customers’ involvement in adverse media stories, checking both traditional screen and print media and online news sources.