Most financial advisers have some level of AML/CFT obligation and must take that obligation seriously.
The degree of obligation and how it is exercised is determined by the type of financial adviser, the products they deal with and their position within the reporting entity.
Therefore, it is recommended that every financial adviser have at least a basic understanding of the Anti Money Laundering and Countering Financing of Terrorism Act 2009 (hereafter referred to as the AML/CFT Act).
Those who have more in-depth obligations – especially AFAs or other entities who deal with category 1 products – should undertake enhanced AML/CFT training. A reporting entity has additional obligations under the AML/CFT Act. This will require more than just knowing about the AML/CFT Act.
Do I have an AML/CFT obligation?
Use this simple table to find out if you have any sort of AML/CFT obligation:
Companies Act 1993 requires that directors ensure their companies are trading legally plus reasonable steps are taken to identify and mitigate risk. This means they should be aware of money laundering/financing terrorism (ML/FT) and have procedures in place within the company to meet their legal obligations
Financial Advisers Act 2008 requires all financial advisers and brokers to engage in conduct that will encourage public confidence in the professionalism and integrity of financial advisers and brokers. Financial advisers and brokers are an integral part of the financial system. This means they should have knowledge of and adhere to the requirements of the AML/CFT in order to contribute towards enhancing public confidence in the financial system.
AML/CFT Act 2009 requires reporting entities to meet specific obligations such as developing a risk assessment, AML/CFT programme and being audited every two years. Those who are employed in the reporting entity must follow the rules and procedures of that reporting entity relating to AML/CFT.
Crimes Act 1961 makes it illegal to undertake money laundering and financing of terrorism. This applies to everyone in NZ.
Code of Professional Conduct requires AFAs under Code Standard 14 to have the competence, knowledge and skills to provide the service plus Code Standard 15 requires AFAs to have knowledge of the Code, the FA Act and other legal obligations relevant to being an AFA. This means they need to know the basics of the AML/CFT Act.
Registered financial advisers
If you are an RFA (providing advice on category 2 products, class service to retail clients, and financial adviser service to a wholesale client) then you are not likely to be a RE and unlikely to have obligations under the AML/CFT Act. RFAs may arrange insurance through insurance companies and mortgage credit (including personal loans) through lenders. However, RFAs are not REs because they are not included in the definition of a RE under regulation 16 of the AML/CFT (Definitions) Regulations 2011.
However, if you are an RFA operating via your NZ-registered company and you advise, and will continue to advise, on KiwiSaver, managed funds, shares, investment linked contracts of insurance, or Whole of Life or Endowment policies, then your company will be deemed to be a reporting entity. Hundreds of RFAs may be potentially caught by this.
If you are an entity (including a QFE) providing financial adviser services in respect of category 1 products to retail and wholesale clients, then you are likely to be a RE and have obligations under the AML/CFT Act.
If you are an entity (including a QFE) carrying out activities listed under the definition of financial institution (e.g. managing individual or collective portfolios, investing, administering, or managing funds or money on behalf of other persons, etc) then you are likely to be a RE and have obligations under the AML/CFT Act.
How do you satisfy the requirements of the AML/CFT Act?
Under the AML/CFT Act, it is possible for your business to discharge your compliance obligations, relating to the development of an AML/CFT risk assessment and documented AML/CFT programme, for the services provided through it. This is because if you are a reporting entity by virtue of being an AFA, then it is likely the business you provide the advisory services through will also be a reporting entity.
If you are working as an AFA in a small advisory business then your business can develop the AML/CFT risk assessment and the AML/CFT programme. However, as an AFA, you should ensure that your business does develop those processes within the defined timeframe.
It is important to remember that, the individual adviser is still a RE and has to comply with their obligations under the AML/CFT Act. The benefit to advisers working in small advisory businesses is avoidance of duplication of the compliance work.
If not sure if you are a RE, then seek legal advice or contact us to discuss your situation.
Disclaimer: This article is general in nature. It is written to assist advisers who are AFAs and RFAs in small businesses to determine if they are likely to be a “reporting entity” and have obligations under the AML/CFT Act. This article is not legal advice, and should not be relied upon as such. This article is not a comprehensive guide covering all situations an individual or an entity may be engaged in to determine if they are a reporting entity. The directors and staff of Boutique Advisers Alliance are not responsible for any error in or omission from this article.