Lawyers and simplified customer due diligence (CDD) and registered banks

The Department of Internal Affairs (DIA), an AML/CFT supervisor, is aware that law firms seek clarification how to meet their CDD obligations relating to their existing business relationships with registered banks. 

DIA hold the interim view that the “existing customer” provisions as defined in the Act are sufficient for this purpose. This is despite a registered bank ordinarily being a type of customer that may be eligible for simplified CDD (sections 18-20 of the Act). 

An existing customer means a person who was in a business relationship with the law firm immediately before 1 July 2018. A law firm is not required to conduct CDD on an existing customer unless there has been a material change in the nature or purpose of the business relationship and it holds insufficient information about that customer (section 14(1)(c) of the Act). This means in relation to a registered bank that is an existing customer, in most cases, a law firm does not need to conduct any further CDD on the registered bank or on a person acting on its behalf.

Example: On 1 July 2018, a lawyer acts for New Zealand registered ‘Bank A’ on registration of a mortgage on a property that is being purchased. If the lawyer has not acted for Bank A in this capacity previously, the law firm may conduct simplified CDD on Bank A. However, if the law firm has an existing relationship with Bank A prior to 1 July 2018, Bank A is an existing customer. Unless there is a material change in the nature or purpose of the services provided and insufficient information about Bank A, the law firm is unlikely to need to conduct any additional CDD. 

Please note that for any new business relationship with a registered bank, a law firm may conduct simplified CDD in accordance with section 18-20 of the Act. This means in relation to a registered bank, the law firm may conduct simplified CDD on the bank and the person acting on its behalf. As with most aspects of the AML/CFT Act, a law firms’ compliance measures should apply a risk-based approach. 

DIA will provide further guidance in relation to this issue as we develop our understanding of the relationships between law firms and registered banks. (via DIA)