The FMA has published an information sheet in relation to the Anti-Money Laundering and Countering Financing of Terrorism (Class Exemptions) Notice 2018.
The FMA has published an information sheet that explains the conditions for reporting entities whose customers include managing intermediaries and customers of managing intermediaries to be able to rely on the Anti-Money Laundering and Countering Financing of Terrorism (Class Exemptions) Notice 2018.
Purpose of the exemption
The primary purpose of the exemption is to reduce the compliance burden where there are multiple reporting entities in a chain of transactions that have the same CDD obligations. This also ensures the CDD obligations fall on the reporting entity best placed to identify the customer’s beneficial owners.
The exemption exempts, subject to certain conditions, reporting entity ‘A’ from the requirement to look through managing intermediary customer ‘B’ to identify the person on whose behalf a transaction is conducted.
The exemption was amended when it was renewed in 2018, to ensure that reporting entity ‘A’ is exempt even if ‘A’ provides a facility to the person on whose behalf a transaction is conducted. For further details refer to the FMA’s information sheet.
Customers in scope of the exemption and conditions
The exemption is in respect of customers of the reporting entity that are:
licensed managing intermediaries (‘LMI’);
LMI customers;
specified managing intermediaries (‘SMI’);
SMI customers.
Exemption in respect of customers that are licensed managing intermediaries
The exemption allows reporting entities to do simplified CDD (rather than standard CDD) on customers that are LMIs. Reporting entities are exempt from the requirement to do CDD on beneficial owners of customers that are LMIs. However, reporting entities must still identify and verify people acting on behalf of a customer that is an LMI according to sections 19 and 20 of the AML/ CFT Act.
LMIs are easily identifiable because they hold a verifiable status under a statutory regime. They are considered low-risk for AML/CFT purposes because
of their level of regulatory oversight. They include:
licensed non-bank deposit takers
Financial Markets Conduct Act 2013 (FMC Act) participants subject to rigorous vetting processes (licensed managers and supervisors of registered managed investment schemes, other FMC Act licence holders, FMA appointees, and registered managed investment schemes).
It is not necessary to include NZ registered banks as LMIs, because the simplified CDD provisions in the AML/CFT Act already apply to registered banks as customers.
To rely on the exemption, a reporting entity must take reasonable steps to verify that the managing intermediary it is dealing with is an LMI. The status of an LMI will be recorded on an official register. For example, ‘Disclose’ records whether a particular scheme has been registered, and the Financial Service Providers Register records whether a particular entity has been licensed. It is sufficient to keep evidence that the appropriate register has been checked.
The reporting entity must conduct enhanced CDD on an LMI, including on all of the LMI’s beneficial owners, if the reporting entity is instructed to conduct a transaction to which section 22A (Enhanced customer due diligence required for certain activities requiring suspicious activities report) of the AML/CFT Act applies.
Exemption in respect of customers that are specified managing intermediaries
Reporting entities are exempt from the requirement to do CDD on those beneficial owners of an SMI that are persons on whose behalf a transaction is conducted by the SMI. Reporting entities must still do CDD on the SMI and on any person acting on behalf of the SMI.
SMIs are financial institutions and schemes that are subject to the AML/CFT Act. However, as SMIs are not subject to the same level of regulatory oversight as LMIs, reporting entities must still do CDD on any beneficial owner of the SMI who has effective control (such as a director), or owns more than 25% of the SMI.
The exemption ensures there is still sufficient enquiry into the beneficial ownership of SMIs, while acknowledging these entities have their own reporting obligations under the AML/CFT Act and are required to conduct CDD on their own customer base (including those persons on whose behalf a transaction is conducted by the SMI giving instructions to the reporting entity).
SMIs include any of the following:
‘financial institutions’ to which the AML/CFT Act applies, that are not licensed managing intermediaries;
foreign financial institutions that have their principal place of business in an overseas jurisdiction with sufficient AML/CFT systems and measures in place and are supervised for AML/ CFT purposes, and that are not licensed managing intermediaries;
unregistered managed investment schemes, where the scheme’s manager or trustee is a person that falls within either of the two categories described above.
Financial advisers governed by the Financial Advisers Act 2008 who are not carrying out one of the roles described above are not SMIs.
Because SMIs are not as readily identifiable as LMIs, reporting entities must carry out more checks on these customers before they can rely on the exemption. Specifically, the reporting entity must obtain written confirmation from a senior manager of the SMI to the effect that it:
has an AML/CFT programme in place (or a foreign equivalent);
is supervised for AML/CFT purposes;
is doing CDD in accordance with the AML/CFT Act (or its foreign equivalent); and
has its principal place of business in a jurisdiction with sufficient AML/CFT systems and measures in place.
A ‘senior manager of an SMI’ refers to a senior manager to whom a reporting entity’s AML/CFT compliance officer must report under section 56(4) of the AML/CFT Act, or a person holding a comparable position in foreign financial institutions.
If the SMI is New Zealand-based, written confirmation of this is sufficient. To help ensure a foreign financial institution or scheme is in a jurisdiction with a sufficient AML/CFT regime, the New Zealand AML/ CFT supervisors have jointly published a Countries Assessment Guideline. The FATF also publishes lists of jurisdictions it considers to be non-cooperative and high risk, and lists of jurisdictions it continues to monitor. It is unlikely business from jurisdictions on these lists would qualify as entities with sufficient AML/CFT regulatory systems.
A reporting entity is not required to verify the written confirmation described above, unless there are reasonable grounds for the reporting entity to doubt the adequacy or veracity of the written confirmation.
The reporting entity must conduct enhanced CDD on an SMI, including on all of the SMI customer’s beneficial owners, if the reporting entity is instructed to conduct a transaction to which section 22A (Enhanced customer due diligence required for certain activities requiring suspicious activities report) of the AML/CFT Act applies.
For further information please refer to the FMA’s information sheet.