Under the AML rules, each reporting entity must have due diligence processes in place to screen each customer for money-laundering and terrorism-financing risk.

The exemption aims to streamline the situation where reporting entities deal with each other and potentially both have to conduct due diligence on the customer to meet their requirements under the AML rules. It would allow for simplified due diligence instead.

The Ministry of Justice says the exemption would be invoked where AFAs are investing, administering or managing funds on behalf of others, such as with DIMS services. “Reporting entities entering into business relationships with these AFAs would be able to rely on the exemption.”

Bradley Kidd, of Chapman Tripp, said the exemption would be welcome. “It recognises there’s no  utlity in having two people doing [customer due diligence]. Only people who genuinely have those people as customers should be doing it.”

He said it was likely that it would mean that AFAs would continue doing customer due diligence but that fund managers might not need to repeat it for those same clients. “Fund managers may attempt to rely on AFAs’ due diligence.”

But he said it would depend on how the relationships worked. Wrap platforms could create different situations and it would be important to work through the exemption notice to analyse each situation, he said.

Some advisers have also complained of duplication in the annual AML return. Because each reporting entity must report each transaction they have been involved with, it is possible that fund managers, custodial services and advisers may all report the same transaction.

The FMA has said it is not worried about that. "The information will be primarily used to risk-assess each individual reporting entity for AML/CFT."

Kidd said the exemption was not designed to tackle reporting duplication.  “That’s a separate question but it’s a good one, particularly with the challenges advisers are facing under the reporting regulation.”

Submissions on the due diligence exemption close on August 22.